Nov. 8, 2018, © Leeham News: Bombardier today announced the sale of its slow-selling, aging Q400 turboprop program to Canada’s Viking Air.
Viking previously purchased out-of-production Bombardier/de Havilland aircraft programs, including the Twin Otter, Beaver and CL-415 firefighting bomber.
Twin Otter production was restarted. The Beaver was not an is not in the cards to be restarted. The CL-415 was limping along, and no longer a contributor to Bombardier’s cash flow and profits.
“The Company entered into definitive agreements for the sale of the Q Series aircraft program and de Havilland trademark to a wholly owned subsidiary of Longview Aviation Capital Corp. for approximately $300m,” Bombardier said in a press release. It also announced the sale of other assets for $800m. The two deals are expected to close in the second half of 2019.
The low price reflects the struggles the Q400 has had for years. Bombardier lost money on the Q400 in recent years.
Bombardier also said it is considering its options for the aging, struggling CRJ program.
“Our full attention is turning to the CRJ program. As we continue to actively participate in the regional aircraft market with our established, scope compliant aircraft, our focus is on reducing cost and increasing volumes while optimizing the aftermarket for the approximately 1,500 CRJ’s in service around the world today. As we look to return the CRJ to profitability, we will also explore strategic options for the program,” the company said.
The CRJ has been outsold by a wide margin by Embraer’s E-Jet. It also is threatened in the next decade by the Mitsubishi MRJ70, which is Scope Clause-compliant in the US market, and the MRJ90 elsewhere in the world.
A trade secret lawsuit launched by Bombardier against Mitsubishi over the MRJ is believed to be aimed at protecting the CRJ.
Embraer, Mitsubishi and ATR are squeezing Bombardier from the latter’s turboprop to the former’s more comfortable, newer technology jets.
Consulting firm Oliver Wyman sees the MRJ out-delivering the CRJ in the next 10 years. LNC forecasts Bombardier announce an end to the CRJ program within the next five years if it isn’t sold first.
The future of the CRJ depends on US Scope Clause restrictions limiting aircraft weight to 86,000 lbs. The next round of contracts are in 2019 and 2020. No relief is expected then. Embarer, whose E175-E2 exceeds the weight limit, hopes for relief in the 2023-24 negotiations.
The MRJ70 complies with Scope. The MRJ90 exceeds the weight limit.
The E-Jets and MRJs provide better passenger experience than the CRJ, which is derived from the 1980s-design Challenger business aircraft.
Bombardier made the Q400 and CRJ announcements in its third quarter earnings release.
“For the quarter, Bombardier’s revenues reached $3.6 billion, representing 3% organic growth year over year, from Transportation, Business Aircraft and Aerostructures, as the Company deconsolidated revenues from the C Series program following the closing of the Airbus partnership,” the company said in its press release. “For the full year, Bombardier expects revenues of approximately $16.5 billion, at the low end of its guidance range.”
With the sale of 50.01% of the CSeries program to Airbus, Bombardier recorded a number of special financial impacts. From the press release:
Cowen & Co. was quick to issue a negative take on Bombardier’s new earnings guidance.
“Investors won’t like the big chop to cash flow guide, which raises questions re management credibility and ability to complete a successful turnaround,” the aerospace analyst wrote. He continued:
Chopped Cash Guide Disappoints Although Q3 Ops In Line.
“Other guide items mostly intact but investors may not care,” he concluded.