2019 Outlook: Will Bombardier exit Commercial aircraft?

Discussion
Bombardier and 2019: a year of change

After handing the keys to the CSeries to Airbus in July 2018, the sale of the QSeries follows in the second half of 2019. Viking Air, a unit of Longview Aviation Capital Corp, buys the aircraft program and the de Havilland brand for US$300m. Viking previously bought the rights to all de Havilland Canada aircraft, including the Twin Otter and the firefighter CL415, from Bombardier. Only the Dash 8, or Q400, as Bombardier (BBD) calls it was missing.

As the de Havilland brand was included in the last sale, we might see a rebranding of Viking Air to de Havilland. It would warm the heart of many aeronauts to have de Havilland name return.

This leaves the CRJ regional jet as the only commercial aircraft in Bombardier’s Commercial Aircraft division. So what’s the plan? A sale of the CRJ as well and an exit from Commercial aircraft?

This makes sense, but there is no acute hurry. The sale and production of 35 CRJs each year can’t carry the infrastructure of a Commercial Aircraft division, and it’s presently not a profitable operation in itself. The higher margin aftermarket support of the flying 1,500 CRJs is what keeps the activity from deeper losses. With the announced further trimming of the Commercial side (in total 5,000 jobs will disappear at BBD), the CRJ program should run at a profit by 2020.

Why the closure of Commercial Aircraft?

Bombardier was a $16.5bn company entering 2018, with Trains at $8.5bn, Business jets $5.0bn, Commercial aircraft $2.4bn and Aerostructures $1.6bn. The Trains, Business jets and Aerostructures have consistently made around 8%-9% margins and Commercial aircraft has been losing money since the start of the CSeries development.

The only chance for a Commercial aircraft activity to continue at BBD was a success for the CSeries. The Boeing suit sealed its fate. It was clear the CSeries was more risk than upside. The program could generate more revenue and margin through Aerostructures deliveries to Airbus than if owned by BBD.

With the future growth opportunity gone, selling the other Commercial Aircraft assets makes business sense. Thus the turboprop business went to the turboprop specialist Viking Air. It’s a small organization compared with BBD and can better streamline the Q400 production and aftermarket operation. Correctly executed, it should secure the future for the De Havilland Dash 8/QSeries.

Developing the CSeries has cost BBD dearly. Group debt was $9bn exiting 2017. The exit of CSeries, sales of Q400 and sale of the Business Aircraft training activities to CAE reduces risk and brings $900m in cash to lower debt.

What will happen to the CRJ?

The CRJ program will be sold, now or later. It will depend on the opportunity when it will leave BBD. Meanwhile, the activity is cleaned from unnecessary overhead and readied for sale. A break even or profitable program is more interesting for a buyer than one making losses.

There are 43 orders, which would last through 2019, but not much further. Any buyer of the CRJ would be interested in the ~50% market share the 1,500 CRJ has in the regional jet market. This gives aftermarket revenue and customer access for any regional aircraft development. Companies like Mitsubishi, COMAC or United Aircraft could be interested.

Another possibility would be a transfer to Airbus to accompany the CSeries/A220. But the question is whether Airbus sees any benefit. The CSeries/A220 fits perfectly to their airliner products. It sells to Airbus customers, the airline’s fleet planners, operations and finance departments.

The CRJ sales is different. The doors which are knocked are to regional jet companies. Smaller organizations flying feeder routes for the Airbus customers. If Airbus engages in the CRJ, it would mean adding sales, product and aftermarket complexity for a new customer group. And all for marginal gains on an aircraft program past its prime.

Outlook for 2019

Bombardier Commercial Aircraft has a busy 2019:

A220

There is high priority work with Airbus to ramp the A220 to at least 70 deliveries for 2019. The delivery rate of CSeries/A220 has been below expectations. The 40 units for 2018 should have been achieved for 2017. With a healthy order situation, it’s now time to ramp deliveries and drive down costs. BBD is the main supplier to the program with wings from Belfast and other aircraft structures from its different facilities. It has everything to gain from an increase in deliveries.

And it should not be forgotten that Bombardier still has a 33% shareholding in CSLAP, the partnership in which Airbus acquired a 50.01% share last summer.

CRJ

With the latest Delta Air Lines order for 20 CRJ900 with the new ATMOSPERE cabin, the production for the CRJ900 is secured for 2019, but not much further. Sales has to intensify to cover 2020 if a buyer for the program shall be found. The new cabin makes the aircraft more acceptable for travelers as gives a less “hunkered down” feeling and allows roller bags in the overhead bins. Is it enough for a new spring? The economics of the CRJ is fine, it’s just the passengers who prefer the competing Embraer E175. If the ATMOSPERE has a good reception at Delta it can give a life extension to the program.

Q400

By this time 2019, this aircraft will be produced by Viking Air. And it might carry the de Havilland name again. It has an order backlog of 76 aircraft and 25 options. With 940 Dash 8 aircraft in the market of different generations and present deliveries at around 20 per year, this gives Viking Air aftermarket revenues and time to build a better future for the program.

What changes could Viking make? The aircraft’s performance is not the problem. Rather, it’s this very attribute–its capable (read high speed) design–which drives system complexity and therefore the production cost above the simpler ATR. And many customers thinks what the ATR delivers is good enough.

Can Viking sway more customers to what the Dash 8/Q400 offers? It will be interesting to follow.

To read the rest of the article Login or Subscribe today.