Economics is not a zero-sum game, but selling airplanes can be in the short term.
So, Boeing’s win today is Bombardier’s loss — and a particularly stinging loss for the Canadian company’s struggling CSeries.
United Continental Holdings announced it plans to buy 40 Boeing 737-700 jetliners — an order worth about $3.22 billion at list prices. It had also been considering Bombardier’s new airplane.
It’s not the end of the world for the new model, which faces an uphill battle for orders, Canaccord Genuity analyst David Tyerman told Bloomberg. “It also raises the question of how profitable the next CSeries order they win will be for them.”
The CSeries is about two years behind schedule and development costs have ballooned to about $5.4 billion, which has threatened to swamp Bombardier’s balance sheet.
Adding to the company’s woes, orders for the new single-aisle jetliner has stalled at 243 for more than a year. Bombardier likely won’t hit its goal of 300 orders for the plane when it enters service in the first half of 2016.
A post on Leeham News &Commentary outlines some factors working against Bombardier salesmen:
First, cheap oil (which is nearing $20 a barrel) means there’s less financial upside to buying a new CSeries, which promises lower operating costs but a higher price tag than older airplanes.
Second, Boeing and Airbus can offer customers better deals than Bombardier. For example, the 737-700 is completely amortized, so it is fairly easy for Boeing to undercut the CSeries’ pricetag. Leeham Co. estimates that Bombardier has dropped CSeries prices by about $5 million, bringing in under $30 million. However, Boeing can offer its 737-700 for $25 million or less.
Third, far more airlines are already familiar with Boeing and Airbus airplanes and support services. They don’t know how well Bombardier will support its CSeries.
Fourth, Boeing and Airbus can offer discounts and concessions on airlines’ existing orders. Bombardier doesn’t have as much to offer.
In short, cheap oil makes the CSeries less attractive, and Bombardier can’t bring as much to the table as Boeing or Airbus can.
Even shorter, it is a tough day to be a Bombardier exec.
In more bad news for Bombardier’s airplane sales, deliveries in the business jet market will likely decline slightly this year, J.P. Morgan analyst Seth Seifman wrote in a research note earlier this month. He expects Bombardier’s Global 5000/6000 to lead the market-wide decline in deliveries.
Boeing picked up more 737 orders from Southwest Airlines, which announced plans to buy 33 Boeing 737-800s to replace its oldest airplanes three years ahead of schedule. It also upgraded its 25 orders for 737-700s to the bigger 737-800s.
Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.
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