Bombardier drops on threat posed by Boeing engine
Shares of Bombardier Inc. (BBD.B-T) dropped Wednesday after Boeing Co said it would offer a revamped engine in its best-selling 737 aircraft, a decision that threatens the Canadian company's new C-Series.
Boeing's new engine was announced as part of a massive $40 billion aircraft US order placed on Wednesday by AMR Corp for 200 Boeing 737s and 260 Airbus A320s for its American Airlines unit.
"Investors will likely react negatively to the announcement as they may be disappointed that Bombardier missed out on this large order," CIBC World Markets analyst Michael Willemse said.
Orders have trickled in for Bombardier's new C-Series aircraft, the world No. 3 planemaker's bold, $3 billion foray into a bigger-sized plane.
The C-Series, aimed at the 110-149 seat market, is due to enter service at the end of 2013 and will compete with Boeing's smaller 737-700 plane and Airbus' A319neo.
A key selling point of the C-Series has been its new, more efficient engine, which will lower operating costs. But a re-engined Boeing 737-700 as well as Airbus' A319neo, which also boasts of lower operating costs, will reduce some of Bombardier's advantage, BMO Capital Markets analyst Fadi Chamoun said.
Pratt & Whitney, a unit of United Technologies Corp., is the exclusive engine maker for the C-Series. The PW1500G series engines promise double-digit improvements in fuel-efficiency, environmental emissions and noise.
AMR has not yet said what engines it wants on the Airbus and Boeing jets it is ordering. A UTC executive said on Wednesday it believes its geared turbofan engine—the same as the one used on the C-Series—has a "great shot" of winning a role in the order.
Boeing had put off a decision on how to upgrade its 737 for more than a year, causing customers to cast an eye at alternatives such as Bombardier's C-Series and Airbus's A319neo.
"We suspect that core Boeing customers that were hitherto considering fleet replacement alternatives in the absence of a near-term solution from Boeing, will likely strongly consider staying the course," UBS Securities analyst Tasneem Azim said in a note to clients.
Montreal-based Bombardier managed to secure 30 firm orders for its CSeries at the time of the Paris Air Show in June. That brings to 123 the number of firm orders for the CS100 and CS300 models.
Separately Bombardier said it will supply an additional 300 rapid transit cars to the Chicago Transit Authority in a new order valued at $331 million.
The order brings the value of Bombardier's contract with the CTA, first announced in 2006, to about $1 billion. The 5000-series rail cars will replace older models. They are being manufactured at Bombardier's plant in Plattsburgh, New York, the company said.