Bombardier's CSeries adds suspense to airshow

LEAH SCHNURR

Reuters

July 11, 2008 at 8:16 AM EDT

TORONTO — Will they or won't they?

That's the big question surrounding Bombardier Inc. ahead of next week's Farnborough International Airshow, as investors await an announcement that the Montreal-based aircraft maker is launching its proposed CSeries airliner.

The CSeries would give the third-largest civil aircraft manufacturer a huge advantage over its competitors at a time when airlines around the world are struggling with record high fuel prices. It will offer 20 per cent less fuel consumption compared with comparable aircraft on the market, as well as 15 per cent lower cash operating costs.

The long-range jet would target the lower end of the 100- to 149-seat market, and push Bombardier into markets now dominated by bigger rivals Boeing Co. and Airbus .

“They're also helped in a big way by the fact that from what's been written, it's highly unlikely that Boeing or Airbus will offer a fuel-efficient, smaller aircraft until 2018 or 2020,” said Richard Stoneman, an analyst at Dundee Capital Markets in Toronto. “That leaves a window open for Bombardier.”

But before it can formally go ahead with the project, Bombardier says it needs to get firm orders for 50 to 100 of the aircraft.

Weak credit market conditions, combined with high fuel prices could make for a difficult environment for Bombardier to obtain enough firm orders.

Deutsche Lufthansa, Qatar Airways, and International Lease Finance Corp., a unit of American International Group Inc. have already expressed interest in the CSeries, the company said.

Bombardier was also in discussions with Northwest Airlines Corp. until the merger with Delta Air Lines Inc .

Jacques Kavafian, an analyst with Research Capital in Toronto, said that he believes China Southern Airlines , the country's largest carrier by fleet size, may be a launch customer with an order for 50. He also expects Shanghai Airlines Co. Ltd. to place a smaller order.

The larger CSeries aircraft will mark a branching out from Bombardier's current lines of regional jets and turboprops, which hold up to 100 or 80 passengers, respectively.

“It's a new niche and it's a niche that could lead us 20 years ahead,” said Marc Duchesne, a spokesman for Bombardier's aerospace division.

The main aircraft that would compete against the CSeries is Boeing's 737-600 and 737-700, and Airbus's A318 and A319. Mr. Kavafian wrote in a research note that fuel savings compared with the Boeing 373-700 are estimated at $2.7-million a year, assuming 4,000 hours of flying.

The CSeries would also compete with the ERJ190 made by Brazil's Embraer, Bombardier's main rival. Mr. Stoneman said the technology behind the CSeries is newer than that of the E-jet, giving it an edge.

Bombardier, which is also the world's top train maker, has until Jan. 31 to decide whether to go ahead with the launch, a timetable that would put the aircraft into service by 2013.

Analysts remain uncertain as to whether an announcement will come at Farnborough, one of the industry's most prestigious showcases, giving it at best 50-50 odds, but all agree that a launch would be guaranteed to make a splash.

A July 15 deadline to decide on a tentative contract agreement with the machinist union in Montreal could also influence the timing of an announcement.

The union reached a tentative deal earlier this week on a contract that stipulates that the CSeries will be assembled at the Mirabel plant north of Montreal, rather than in Kansas City, Missouri, which is also courting Bombardier for the contract.

Bombardier has said a decision on where the aircraft will be built will be part of its larger launch decision, while the union said the deadline was picked to coincide with a possible Farnborough announcement.

Bombardier is also scheduled to provide an update at Farnborough on a memorandum of understanding it signed last year with state-owned China Aviation Industry Corp I.

The two companies agreed to look at working together on the CSeries. The Chinese company also said it would invest $400-million in the development program for the CSeries and build its fuselage.