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  • CSeries: The Worriers Within
    Posted by Andrew Compart 4:15 PM on Mar 15, 2012

    In a speech to the Wings Club in New York last month, Bombardier President/CEO Pierre Beaudoin defended the Canadian aircraft manufacturer’s new CSeries against “naysayers,” including the ones who have raised questions about the supposed “slow” order uptake for the 100-145-seat aircraft.

    “This one is a case of some people playing fast and loose with their sales figures,” he said, citing the figure for orders, options and purchase rights and noting that Bombardier has sold out delivery slots for the first two-and-a-half years. That all-in number tops 300—which sounds better than the 138 firm orders Bombardier has from seven customers.

    "We’re not competing against the A320NEO or the Boeing 737-800 MAX,” Beaudoin added. “When you compare apples to apples, we have outsold competitors in the below-150-seat category and our order trajectory is as good as we want and need it to be.”

    It was a spirited defense of the aircraft program, with just one problem: At least two of the program’s orderbook skeptics happen to be CSeries customers, including the biggest one of all, Republic Airways, which worries the CSeries could be on the same path Boeing was with its 717.

    For Bombardier, that’s not a welcome comparison.

    Republic Airways CEO Bryan Bedford recently expressed concerns about the number of CSeries orders that Bombardier has received, and he repeated those concerns when stock analysts asked Bedford about it during the fourth-quarter earnings call on March 1.

    Korean Air executives also have expressed some concerns, but Republic’s are particularly telling because the airline is the CSeries’ biggest customer, with a firm order for 40 of the aircraft and options for 40 more.

    In an interview with me after his company’s earnings call, Bedford elaborated on his concerns (AWIN subscribers-only story).

    He says Bombardier has told him it is aiming for orders for about 400 of the aircraft from about 40 customers. “It’s not looking for giant orders; it’s looking for a nice breadth of customers globally,” Bedford says. But having seven customers with firm orders for 138 aircraft is pretty far from that goal.

    Republic’s chief says he believes Bombardier when it says it still is going to build the aircraft, and he still believes that it will be a good one; Bombardier says the CSeries will burn 20% less fuel than existing aircraft of its size. But Bedford says a robust orderbook makes lessors and debt owners less concerned about residual risk and asset values. Bedford points out that Boeing had a difficult time selling its 717 and terminated the program in 2006 after building 156 of the type.

    “It’s not a great place to be right now, being the owner of a 717,” Bedford notes.

    Asked if there is an “out” in the CSeries contract for Republic if the orders do not pick up, Bedford declined to discuss contract specifics. He says only that Republic has expressed its concerns to the manufacturer, and “we’ll cross that bridge when we come to it.”

    That cannot be a very comforting answer for Bombardier, given that there have been questions about the viability of Republic’s CSeries order ever since it reached a deal with Airbus last summer to acquire 80 A320NEO family aircraft for its Frontier Airlines subsidiary.

    At the time of the CSeries order, Republic seemed to clearly intend them for Denver-based Frontier. It asked for the CS300 aircraft in a single cabin configuration with 138 seats, including 25 “Stretch”-branded seats with extra leg room to match what Frontier offered. Republic subsequently insisted the CS300 could coexist with the NEO order, providing “significant operating capability from Denver’s hot-and-high geography to our international destinations.”

    But with Republic hoping to sell or spin off its Frontier subsidiary this year, Bedford now is coy about his airline’s CSeries plans. He suggests the usage options would not be limited to Frontier, referring to some “interesting ideas” on how to make use of the aircraft but declining to provide any specifics.

    “When we get closer to 2015, we’ll reveal them,” he says, referring to the timing of the first CSeries delivery for Republic.

    Of course, that assumes the airline takes them.

    Bombardier’s defense of its CSeries orderbook, during its own earnings call, was not confined to its usage of the all-in number of about 300. Beaudoin also assured analysts that Bombardier has “new customers that we’re working on,” adding that “China typically orders closer to production.” Bombardier Aerospace President/CEO Guy Hachey insisted that the company’s CSeries clients “understand the progress we are making with the programs” and are “very committed” to it.

    For Bombardier’s sake, it needs to be correct on both counts.

    Tags: tw99, AWCOL, CSeries, Republic, Bombardier, Korean

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