1. JP Morgan looks at Bombardier
Aerospace analyst Joe Nadol has an interesting take on Bombardier and the next 12 months. Nadol begins with, “We believe Bombardier may be better positioned now than at any time in the 10+ years we’ve followed the stock,” and continues:
Three Important BBD Drivers: 1) CSeries, 2) CSeries, 3) CSeries. With the business jet and train businesses both poised for solid earnings growth, the CSeries is now clearly set as the key likely driver of the stock. There are two primary issues here. The first is demand, and we believe the program needs to start racking up more orders this year, even by the Paris Air Show in June. We believe there is a high level of interest, and we are fairly confident Bombardier will sell more aircraft. The partnership with Comac that Bombardier announced last week seems to foreshadow meaningful Chinese orders. Bombardier also has nearly $12 bil in financing for CSeries aircraft available from Chinese sources. The second issue is execution. Management noted that Bombardier still expects to fly the aircraft next year and also highlighted some recently achieved milestones for the engine. However, Flight reported in recent weeks that the date for first flight may have slipped by a few months into next fall, so the program does appear to be experiencing at least the normal level of fits and starts. Thus far, the CSeries appears on track overall, but execution obviously remains a major overhang given the complexity of the program and the well-known problems the industry has had meeting cost and schedule targets in recent years.
Odds and Ends this week:
Note: this is unusually long, 11 pages when printed.
The new year is here and it is time for our annual look-ahead for the big OEMs.
On a macro level, 2011 should be a good year. Airline passenger and cargo traffic recovery should continue. The global economy also is recovering, but it is almost painfully slow to do so. Still, this is better than some of the alternatives.
Airlines and lessors are likely to continue their order stream that resumed in mid-2010 at the Farnborough Air Show. There could be some key orders that will influence the OEMs and their strategies going forward.
On the military front, we are much more limited in our tracking. We follow the KC-X tanker program because the offerings are based on commercial airliners. We slightly follow the P-8A Poseidon for the same reason, but Boeing pretty much has the monopoly for this type airplane, so there isn’t much to follow.
We do closely follow cybersecurity issues, if for no other reason than it is so important but also because key aerospace companies, including Boeing, have major efforts in this arena.
But by and large, we focus on the OEMs, the emerging competitors and the new engines.
So let’s get to it.
Update, Dec. 13: FlightGlobal has this interview with Ryanair and its critique of the NEO.
The (London) Financial Times has this interview with Boeing Commercial Airplanes CEO Jim Albaugh in which he says there is no compelling reason now to re-engine the 737.
Boeing believes the newly announced Airbus A320neo family merely brings the legacy A320 family to parity with the 737 or at most provides only a 3%-4% direct operating cost advantage to the NEO which can be matched by yet more refinements to the 737.
Airbus refutes Boeing’s conclusions but won’t release its own numbers, regarding them as proprietary. But in a new study, The Business Case for the Bombardier CSeries, by AirInsight, with which we are affiliated, AirInsight’s independent analysis concludes the NEO generally has at best a slight advantage over the 737-700 and 737-800–but nothing to shout about.
Our colleagues at Commercial Aviation Online put together the story below on lessor and banker reaction to the Airbus A320neo announcement December 1.
We knew–and previously referenced here–reluctance on the part of these groups to the NEO concept, but even we were stunned by the blistering response toward Airbus.
This is reprinted with permission.
|Source:||Commercial Aviation Online|
The launch of the Airbus neo programme on 1 December with plans for a 2016 entry into service for the initial model has generated a lot of talk in the aviation finance community, particularly concerning the impact on residual values.
CAO spoke to lessors and bankers about the move and here’s what they had to say:
Airbus’ A320 NEO won’t kill the Bombardier CSeries, a new study concludes, issued today by AirInsight.
The study, “The Business Case for the Bombardier CSeries,” which we co-authored, is discussed on the AirInsight blog.
The study began as an update to AirInsight’s report in December 2009 on the prospect of re-engining the Airbus A320 and Boeing 737 families. As Airbus COO-Customers John Leahy repeatedly asserted that to re-engine the A320 would kill the business case for the CSeries, AirInsight broadened its update into a full, in-depth study. AirInsight concluded that the business case for the CSeries is sound.
Airbus has confirmed to us the planned EIS of the A320neo family. The company initially announced only that the A320neo would enter service in the Spring of 2016. A spokesman confirmed our estimates of the family’s EIS:
A320 EIS: Spring 2016
A321 EIS: 4Q2016
A319 EIS: Spring 2017
The Zhuhai Air Show in China is Nov. 16-21 and there are a number of expectations for it.
First is the expectation in the West that Bombardier will announce the long-awaited Chinese order for the CSeries from China Development Bank (CDB), which earlier this year pledged more than $3bn in airline financing to Bombardier for the Q400, CRJ and CSeries. The Chinese order had widely been expected at the Farnborough Air Show and when it didn’t appear, Bombardier took a huge PR hit and disappointed aerospace analysts.
In fact, we predicted a full week before the Air Show that no CSeries orders would be announced there. We’re going to go out on a limb and predict there won’t be any announced at the Zhuhai show, either.
We wrote the following article for Commercial Aviation Online, which appeared yesterday. In case anyone wonders, there is no relation between John Hamilton and us.
The chief engineer of the 737 program is skeptical of the emerging competitors’ airplanes and the announced entry-into-service (EIS) dates, and this has a clear influence on what Boeing will do to enhance, re-engine or replace the 737 in the coming years.
John Hamilton, in a media briefing on the roll-out 26 October of the 737’s Boeing Sky Interior and a refresher course on the technical enhancements that will be in place next year, said Bombardier is facing new technologies it hasn’t worked with before that places in doubt the promised 2013 EIS of the 110-130 seat CS100. This is a potential replacement for the Boeing 737-500 Classic and the 737-600 Next Generation aircraft.