Bombardier inks new CSeries order, 1Q results surpass expectations

After growing apprehension among analysts and lessors about the dearth of orders for the new 100 to 145-seat Bombardier CSeries, the company inked a deal with Braathens Leasing for five each of the CS100 and CS300 series aircraft. It has also optioned 10 more with the aircraft destined for sister company Malmö Aviation.

While Bombardier has continued to insist that its order book is about the same as other aircraft at this point in the program, analysts and lessors have clearly indicated that Bombardier needs to increase orders substantially this year to maintain its credibility in the face of the Airbus NEO. Both Bombardier and lessors have indicated that the major hurdle is convincing customers that Bombardier can deliver on such a new program without delay at a time when Boeing and Airbus have let schedules slip more than once owing to development issues. Commercial Aircraft President Gary Scott insists the company is close on several campaigns.

The transaction increases firm orders for the CSeries to 100, including 38 CS100 and 62 CS300 aircraft, with 100 options, and raises the number of CSeries aircraft customers to four. Braathens joins Lufthansa, Lease Corporation International Group and Republic Airways Holdings as customers.

The aircraft are scheduled for 2014 delivery to the airline’s Bromma base as part of a fleet renewal effort to replace its 12 Avro RJ 100s, formerly the BAe 146, just as the CSeries is doing at Swiss. The company also plans on exploring new business opportunities, according to the manufacturer. Both Swedish companies are parts of Braathens Aviation.

The order is valued at USD665 million and could be as high as USD1.37 billion were the options to be firmed.

As with most city-centre airports, noise is an issue and the airline pointed to the CSeries noise footprint as a key factor.  “The performance and environmental features of Bombardier’s CSeries aircraft will not only strengthen our position as the leading operator at Bromma-Stockholm City Airport, but will allow us to expand our business throughout the region,” said Braathens Aviation Chair Geir Stormorken.

CEO Knut Solberg also pointed to emissions, fuel consumption and runway performance as other key factors. “With the CSeries aircraft, we found exactly what we were looking for,” he said. “The CSeries aircraft promise excellent runway performance, noise levels which are less than half those of any similarly-sized aircraft currently in production, as well as unsurpassed environmental credentials. We think that the CSeries family of aircraft is a ‘game-changer’ in the context of the environment and performance, and we are very excited about introducing the CSeries jetliners to our passengers.”

The CS100 aircraft is scheduled to enter revenue service in 2013, followed by the CS300 aircraft in 2014.

First quarter results

BBD beat market expectations in the first quarter ended 30-April, according to BMO Capital Markets Analyst Fadi Chamoun, who cited higher Global Express margins and improving trends in both business jets and transportation. However, it is finding its commercial aircraft sector slower to recover despite reporting an improved level of interest but is clearly on the other side of the recession as backlogs grow.

The company reported first quarter net profit of CAD220 million or 12 cents a share, up two cents from expectations. The earnings also surpassed the CAD195 million posted in 1Q-2010. It reported revenues of CAD4.7 billion, up 9% year on year and an EBIT margin of 6.7%, up from 6.5% in the 2010 quarter.

Bombardier Aerospace has started to benefit from a stronger business aircraft market, especially at the high end,” said Bombardier Aerospace CEO Pierre Beaudoin. “Our state-of-the-art business aircraft product offering has paid off, as illustrated by the increased level of new orders this quarter.”

He reported a company-wide backlog of CAD55.1 billion, saying it “gives us great visibility on revenues for the next few years.”

Aerospace revenues topped CAD2.2 billion, up from the CAD2 billion received in the 2010 quarter while EBIT reached CAD141 million, or 6.4% of revenues, compared to CAD133 million, or 6.8% last fiscal year. Free cash flow usage of CAD168 million compares to a usage of CAD205 million for the same period last year.

The division delivered 61 aircraft for the first quarter, compared to 56 last fiscal year and received 86 net orders, compared to 61 for the same period last fiscal year. Its backlog increased by 10% reaching CAD21.1 billion, compared to CAD19.2 billion as of 31-Jan.

The company pointed out that Aerospace was the market leader, according to the General Aviation Manufacturers Association report in both revenues (40%) and deliveries at 39% of the market during the first three months of 2011.The group continued to experience an increasing level of business aircraft orders with 77 net orders, including an order from NetJets Inc. for 50 aircraft of the Global family, for a value of CAD2.8 billion based on list prices, compared to six for the same period last fiscal year.

Aerospace reported an increase in commercial aircraft deliveries from the 16 in the year-ago quarter to 23 in 1Q-2011. It cited a slower recovery for regional airlines for the slow pace in the commercial sector. It expects rising fuel will mitigate for its Q400 turboprop as airlines replace regional jet fleets.

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