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Sep 27, 2017

Bombardier nears $1.25-billion CSeries deal with Air Baltic

Bombardier shares tumble after U.S. sides with Boeing in trade dispute

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Bombardier Inc., the Canadian planemaker facing U.S. import duties on its CSeries jet, is nearing a deal to sell at least 14 of the planes to Air Baltic Corp. in an order with a list value of about $1.25 billion.

The carrier is set to buy CS300 models “definitely before the end of next year,” Air Baltic Chief Executive Officer Martin Gauss said Wednesday, fewer than 24 hours after the U.S. imposed the preliminary restrictions. The airline will switch to an all-C Series fleet, having settled on an additional purchase of the Bombardier jets after also considering Embraer SA’s E2 aircraft family.

“We have made the strategic decision to go to an all-jet fleet,” Gauss said in an interview from Riga, Latvia. “It’s not clear when we will place the order, but we will replace our turboprops with C Series.”

Air Baltic’s endorsement provides a boost to Bombardier after the U.S. Commerce Department slapped duties on the C Series, citing unfair Canadian subsidies after a complaint by Boeing Co. In addition, Bombardier’s rail-equipment unit risks dropping to the No. 3 rank globally after the announced merger of Siemens AG’s train unit with France’s Alstom SA.

The preliminary U.S. ruling on aircraft “doesn’t change our confidence in the C Series,” Gauss said. “This is a political issue. It has nothing to do with the aircraft.”



INTERNATIONAL SALES 

A major C Series order from a non-U.S. carrier would alleviate fears that a ramp-up in production would be interrupted next year or in 2019, said Nicholas Heymann, an analyst at William Blair & Co.

“This is a hot-button issue for investors,” he said by telephone. “Air Baltic is not a major airline, but they are an existing user that’s coming back, so this will definitely be constructive for Bombardier.”

Air Baltic’s CS300 planes are burning about 21 per cent less fuel than the aging Boeing 737-300 aircraft they are replacing, with longer flights typically yielding greater savings, Gauss said. Some of the jets have been flying as much as 17 hours a day, serving routes such as Riga-Madrid and Riga-Baku.

Bombardier said the carrier’s interest showed trust in the C Series. “The aircraft is exceeding performance expectations and is getting overwhelmingly positive reviews from passengers,” Bryan Tucker, a spokesman for the Montreal-based manufacturer, said in an emailed statement.

Based in Riga, Air Baltic already flies seven CS300s and has pending deliveries for 13 more. Shipments from the next order would probably start in 2020, Gauss said, adding that the carrier would include options allowing it to buy some smaller CS100 planes based on demand.