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The C-Series: Finally Off The Ground – But Where Is It Going?

Bombardier’s C-Series 100 finally received certification from Transport Canada on Friday. When the project was first unveiled in 2008, its fuel efficiency, low noise emissions, and ability to take-off from a 4,000 foot runway had all of the hallmarks of a success story. Despite the initial fanfare, the plane endured setbacks during its testing, and is scheduled to deliver its first aircraft during the first half of 2016 – 2.5 years behind its initial scheduled release of late 2013. Orders have been slow, and Porter Airlines is the only Canadian air carrier to place an order, albeit a conditional one.

Bombardier itself is under heavy financial pressure, and only recently received a major subsidy from the Quebec provincial government; the company is still seeking further assistance from the federal government. There were several rumors during the autumn that Airbus would acquire Bombardier’s aviation division although nothing transpired.

The C-Series was to be the new vision in small to mid-sized aircraft, but its future is still unclear.

So Who Wants One?

The first order for the C-Series 100 (CS100) airplanes was placed in 2009 by Swiss (Lufthansa Group) and are scheduled to be delivered sometime in the first half of 2016. The CS100 is the smaller of the two versions with a capacity of 108-133 seats, with the C-Series 300 (CS300) having a capacity of 130-160 seats. Although there are 603 orders for both versions of the C-Series, only 243 of the orders are firm. The largest order to date is by Republic Airways Holdings, who has since indicated that the plane is no longer part of its future following its recent restructuring. Although sales have been lower than expected, this may reflect the delay in reaching the certification process: if orders do not pick up once airplanes start to be delivered, the commercial success of the aircraft may, however, become doubtful.

Canadian Airlines

The sole Canadian company to order the C-Series is that of Porter Airlines, a wholly owned subsidiary of Porter Aviation Holdings, a private company. Porter Airlines has developed its route network in central and eastern Canada and operates direct flights to 9 U.S. destinations, complemented by an interline arrangement with JetBlue. The airlines uses only Q400 planes (also made by Bombardier) and is smaller than either Air Canada or Westjet. The airline’s primary airport base is that of Billy Bishop Airport, formerly known as Toronto Island Airport.

Although Porter Airlines has an order of 30 CS100, the purchase is conditional upon gaining permission to operate jets at Billy Bishop Airport, something that is currently prohibited. Despite a vigorous campaign to sway public officials and public opinion (see www.porterplans.com), the new Transportation Minister, Mr. Marc Garneau, indicated last month that there was no intention to review the current operating conditions at the airport, effectively quashing Porter’s commitment to purchase the planes.
Air Canada indicated early in 2014 that it had no immediate intentions to purchase the C-Series, although it does consider the aircraft to be a possible replacement for its Embraer 190 airplanes when they start to be retired after 2020. Westjet has opted to stay with Boeing for its future aircraft purchases.

What Happens to Bombardier?

Bombardier’s share price (BBD.B) has fallen from $4.20 (CDN) at the start of the year to $1.36 (CDN) at the close of Friday’s markets. Liquidity issues have dogged the company, and Bombardier suspended its dividend in February 2015 and sought to issue new debt instruments and shares in an attempt to shore up its cash reserves by $2.0 billion (USD).

The company received a $1 billion (USD) bailout at the end of October from the Quebec Government in return for 49.5% stake in the company, control of the C-Series, and the option to buy up to 200 million shares in the future. Although Bombardier has also requested federal assistance, aid from the Canadian Government is not as yet forthcoming. Bombardier may be the largest aviation manufacturer in Canada, but the federal government still wants to see ‘a strong business case’ before putting taxpayer money into the company; the C-Series project has left the company with over $9 billion of debt (CDN).

The funds from Quebec may prove to be the lifeline that the company needs to stay solvent. It is expected that the larger CS300 will receive certification sometime within the next six months and that deliveries would be forthcoming soon thereafter. If certification for the CS300 succeeds without delays, then it might be the catalyst for enticing more orders.

Cloudy or Clear Skies Ahead?

The CS100 certification was good news for Bombardier as well as its patient customers. If the airplanes start to be delivered – and deliver upon the manufacturer’s promises – then Bombardier could turn things around, especially with the much-needed cash injection from the Quebec Government. But it is not all clear ahead. The company could use more funds to strengthen its liquidity, and the CS300 has yet to be certified; any unforeseen challenges in that regard will place the company under more stress. Bombardier also needs to secure new orders for the C-Series to be successful, and perhaps the strongest challenge to that is the current low price of oil. Although airlines like low operating costs, slightly higher operating costs for older albeit less efficient airplanes clearly outweigh the capital outlay for a new airplane. A sudden increase in oil changes all of that, but until then, the C-Series may continue to be a tough sell.

by F. Kremarik, MSc, Aviation Analyst.

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