June 3, 2016 / 10:57 PM / 2 years ago

REFILE-Bombardier faces discount headache as CSeries sales take off

(Corrects paragraph 6 to remove repetitive numbers)

* Bombardier woos new CSeries buyers at key airline meetings

* Accounting charge sheds rare light on aircraft pricing

* Bombardier CEO says CSeries re-launched and ‘here to stay’

By Tim Hepher and Allison Lampert

DUBLIN/MONTREAL, June 3 (Reuters) - Bombardier performed a high-stake sales pitch for its CSeries jet at 30,000 feet on Friday, hoping to persuade more than two dozen airline bosses to buy the industry’s newest fuel-saving model while reining in discounts.

The Canadian planemaker flew Star Alliance bosses on board its 110-seat CS100 between airline gatherings in Europe where it sought to preserve momentum after winning a lifeline order for the money-losing jet from Delta Air Lines.

“We are in a good place today. We have the contracts ready for you as you exit the plane,” Bombardier Chief Executive Alain Bellemare joked to the 28 leaders on board.

Just over a year ago, Bombardier might have had trouble rounding up as many CEOs after seeing Canada’s aerospace ambitions waver under the pressure of cash shortages.

But while the project survived a near-death experience with Delta’s discounted order, Bombardier’s rivals and others in the industry predict it will remain on the rack a while longer as others demand equal bargains, keeping the CSeries in the red.

“I want the best deal, better than Delta,” said Ethiopian Airlines CEO Tewolde Gebremariam.

He probably won’t get that, having expressed interest in 10-15 jets rather than 75 bought by Delta. But his remark illustrates Bombardier’s challenge in narrowing CSeries losses.

“The question is whether or not Bombardier will be successful in raising prices,” said Bertrand Grabowski, a managing director of Germany’s DVB Bank.

“For this to happen, it needs a few conditions and one of them is a steady growth market.”

Bombardier’s task is not made easier by an outbreak of transparency in the secretive jet market after it was forced by Canadian accounting rules to take a $500 million charge for the Delta deal and two others totalling 127 planes.

Rival jetmakers and analysts quickly calculated Delta had paid $22-23 million a plane, a whopping two-thirds discount.

Macquarie analyst Konark Gupta wrote Bombardier could have difficulty getting the CSeries to breakeven by 2020-21 if it keeps selling at such prices. Others say it has limited choice.

“I think they have got their work cut out trying to convince others to pay maybe $10-15 million more (than Delta) - why would they?” said Airbus executive vice-president Chris Buckley.


Bombardier additionally faces accusations of price dumping from rival Embraer, which it denies.

“We have to show the market that this price level is unsustainable,” said commercial chief Paulo Cesar Silva said.

“No company can be viable under the conditions that Bombardier offered in the Delta campaign. That won’t be the market standard. It’s impossible.”

Industry sources say Airbus leased jets as try-outs for as little as $1 a month to enter the U.S. market in the 1980s, but found itself trapped at low prices for years after that.

But deals are usually kept secret and Bombardier’s provision has shed unusual light on its flexibility.

“The next big guy Bombardier talks to is going to say ‘will you be taking a $500 million loss for me’?” an industry source said.

Bombardier executives respond that in the cut-throat airliner world, negotiations always start far apart.

They acknowledge using ‘one-off’ price tactics to reboot the troubled project but deny discounting as much as reported, and say others’ estimates fail to reflect shifting costs.

Bombardier seeks new customers in every continent including a major low-cost carrier to diversify its order book and demonstrate it can serve different business models.

While chasing new customers, it must also prevent existing ones delaying or cancelling.

Industry sources estimate as many as 100 of the 325 orders are at risk owing to the patchy finances of early customers.

But the recent order boost does give the company more visibility on production and strengthens the profile of its order book: two other parameters watched by investors.

“If you question some orders, we would not debate that,” Bellemare said. “We have re-launched the programme. A year ago there were a lot of questions about the CSeries’ future: not any more. The aircraft is here to stay.” (Additional reporting by Victoria Bryan, Brad Haynes, Writing by Tim Hepher, Editing by Tom Brown)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below