By Frederic Tomesco / Bloomberg
Bombardier Inc. won the first major sales agreement in 18 months for its beleaguered C Series jet as it prepares to hand control of the aircraft program to Airbus.
An unidentified European customer intends to buy 31 of the all-new planes with options for 30 more, Bombardier said Thursday as it reported earnings. That softened the blow from a cut to the company’s forecast for C Series deliveries this year.
The preliminary deal underscores the brighter outlook for the C Series after production delays and cost overruns marred Bombardier’s $6 billion investment and forced the company to rely on government assistance. Airbus agreed to take a majority stake in the partnership that builds the plane, vowing to cut production costs, win thousands of new orders and move some manufacturing to Alabama to sidestep recently imposed U.S. tariffs on the aircraft.
“This order is definitely getting the market’s attention,” said Nick Heymann, an analyst at William Blair & Co. “Their ability to bring home the big orders has been enhanced by the Airbus partnership. People are starting to understand this deal with Airbus has completely changed the market.”
If the European customer finalizes its intent to purchase C Series planes, the deal would mark the first major sale of the aircraft since Delta Air Lines agreed to buy 75 of the single-aisle jets in April 2016. The only deal since then was a two-plane transaction with Air Tanzania at the end of last year.
The Delta purchase prompted a complaint to the U.S. government by Boeing, which said the planes were sold at “absurdly low prices.” In response, the Commerce Department slapped import duties of 300 percent on the C Series, saying Montreal-based Bombardier sold it at less than fair value after receiving illegal government subsidies in Canada.
Bombardier said it would miss this year’s delivery target for the C Series as it grapples with engine delays. Customers will receive only 20 to 22 of the aircraft, down from an earlier plan for about 30, the company said.
Engine supplier Pratt & Whitney, a division of United Technologies Corp., has been working to overcome durability issues affecting the geared turbofan engines that power the C Series as well as Airbus’s A320neo family of jets. The turbine maker, which reaffirmed its target for 350 to 400 deliveries of the engine this year, is rolling out fixes for the problems.
Because of the delays, Pratt will provide Bombardier with an undisclosed supplier advance starting in the fourth quarter, the Canadian jetmaker said. On a conference call with investors and analysts, Bombardier Chief Executive Officer Alain Bellemare called the delays “a short-term issue that Pratt is actively addressing.”
Shipping fewer-than-expected C Series jets will dent annual sales by $300 million to $500 million, Chief Financial Officer John Di Bert said. Airplane manufacturers typically collect the bulk of their payments when clients receive their aircraft.
The engine delays will probably crimp 2018 deliveries as well. While Bombardier has said before it would ship 45 to 55 C Series jets in 2018, the actual number is apt to be lower, Di Bert said.
“We need a little bit more work with Pratt to figure out the sequence and the scheduling of engines into the next year,” Di Bert said. “My expectation is, we will give you guys a number and it will be something like 40-45 when all is said and done.”
This year, earnings before interest, taxes and special items will be at least $630 million, at the upper end of the previous forecast range, Bombardier said. Full-year sales will be about $16.3 billion while the company spends about $1 billion of free cash flow. The company burned through $495 million in cash in the third quarter, compared with $320 million a year earlier.
In the third quarter, Bombardier reported an adjusted loss of 1 cent a share, matching the average of analysts’ estimates compiled by Bloomberg. Revenue climbed 2.6 percent to $3.84 billion, while analysts had projected $4.13 billion.
Bombardier had $2.81 billion of available short-term capital resources at the end of September, down from $4.48 billion at the end of last year. The most-recent figure includes $1.84 billion in cash and cash equivalents. Adjusted debt was $9.4 billion.
The company invested over the last decade to develop the C Series, a two-airplane family spanning 108 to 160 seats. The larger of the models overlaps with the smallest commercial jets sold by Airbus and Boeing.
The C Series entered commercial service last year at Deutsche Lufthansa’s Swiss International unit. The CS100 model has a catalog price of $79.5 million, before the discounts that are customary for aircraft purchases. The CS300 lists at $89.5 million.
Bombardier’s agreement with the European customer covers 31 firm aircraft and options for 30 more. The planemaker expects to cinch the deal by year-end. The firm order would have a list value of about $2.4 billion.
“As Airbus joins the program, and with the C Series continuing to prove itself in service, we expect sales momentum to accelerate quickly,” Bellemare said in the statement.