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Nov 2, 2017

Bombardier shares rise after receiving letter of intent for up to 61 CSeries jets

Bombardier: Unnamed European costumer poised to buy up to 61 CSeries jets

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MONTREAL -- Bombardier Inc. landed its largest potential C Series order in nearly two years even as it cut its forecast for deliveries this year because of engine delivery issues.

The Montreal-based aerospace manufacturer said it has signed a letter of intent with an unidentified European customer for a firm order of 31 CSeries aircraft and options for an additional 30 jets. Based on the list price, the firm order portion would be worth $2.4 billion.

Chief executive Alain Bellemare said the potential order that is expected to be finalized this year is great news for the program, which is the subject of a preliminary trade sanction from the U.S. government.

"This new order confirms the increasing confidence that airlines and leasing companies have in the CSeries and we expect to see accelerating sales momentum in the months ahead," he said Thursday during a conference call about its third-quarter results.

Some analysts were anticipating orders because of increased confidence in the CSeries from the Airbus deal, which closes in 2018. A European customer won't face potential duties stemming from a trade dispute with Boeing Co. (BA.N). 

"We'll have to see who the new airline is, but it certainly sounds promising, particularly since it isn’t subject to the US duty," said Teal Group analyst Richard Aboulafia.

 



Tanzania ordered two larger CS300 planes last December, but Delta Air Lines placed an order for up to 125 CS100 aircraft last April.

While the partnership with Airbus announced Oct. 16 will strengthen the program, Bellemare conceded that the order was already in the works.

"I wouldn't say they are today totally linked but is clearly helping us to accelerate the sales momentum," he told analysts.

Bombardier (BBDb.TO) confirmed that engine production issues at Pratt & Whitney has forced it to reduce the number of CSeries aircraft it will deliver this year.

The company said it now expects to deliver 20 to 22 CSeries jets for 2017 compared with its earlier guidance for about 30.

That number should more than double to between 45 and 55 next year.

"At this point in time it's too early to call a number for next year, but probably on the lower end of that range," said chief financial officer John Di Bert.

United Technologies Inc., the maker of the Pratt & Whitney geared turbofan engines, has held back some engine shipments to Bombardier and Airbus so it could offer spare engines to airlines that have had problems with the engines used on aircraft in service.

The company has agreed to provide Bombardier with unspecified cash advances to support the higher level of inventories Bombardier will be required to hold.

Bombardier said it is on track with its five-year turnaround plan to meet its 2020 financial objectives despite losing US$117 million or five cents per share for the quarter ended Sept. 30. That compared with a loss of US$94 million or four cents per share a year ago.

McCreath: Bombardier's stock is 'uninvestable'

BNN Commentator Andrew McCreath reacts to news that Bombardier has an order for its CSeries planes lined up. He also discusses the latest quarterly results from Canadian Natural, Enbridge, Cenovus, Facebook and Whitecap Resources. *Disclosure: Andrew McCreath's hedge funds at Forge First are short shares of Canadian Natural and Enbridge.

Revenue grew to US$3.84 billion from $3.74 billion in the quarter despite fewer CSeries deliveries as the railway division's sales surged 20 per cent and its order backlog reached US$33 billion.

Seth Seifman of J.P. Morgan said the US$495 million cash use in the quarter -- a key investor concern -- was a bit worse than expected but not dramatically different from the company's plan.

"We are taking the big strategic steps necessary to unleash the full value of our portfolio," he said, noting margin growth for business jets and the transportation divisions.

Bellemare said he's confident that Bombardier can compete strongly even as Siemens and Alstom plan to merge to better take on the Chinese.

"We will continue to look at the competitive landscape and assess some potential moves as long as they would create value for shareholders and we will look at all options," he said when asked about the potential for Bombardier to merge with a rival.

"Everything is possible but it needs to make some good strategic sense."

On the Toronto Stock Exchange, Bombardier's shares closed up more than six per cent to $2.95 in Thursday trading.

-- With files from BNN