Canada's Boeing challenger could be in for some good times (BBD.B)
Benjamin Zhang/Business Insider
Bombardier Aerospace announced late last week that Delta Air Lines agreed to order 75 of the company's C Series airliners in a deal worth up to $5.6 billion.
The landmark order was a watershed moment for the Canadian airplane maker and its critically acclaimed but slow-selling jet.
Although Bombardier has long been an industry leader in business and regional jets, the C Series marked the first time the company had to compete directly against industry titans Boeing and Airbus.
For much of its decade-long history, the C Series program has been beset with a continuous string of troubles. At last count, the aircraft was two years late and about $2 billion over budget.
Last year, Bombardier was forced to write down more than $4 billion and take $1 billion cash injection from the Quebec government.
Although Bombardier managed to land a 45-aircraft commitment from Air Canada in February, the airline has yet to convert the commitment into firm orders. Further, critics of the deal cite Bombardier's close ties with the Canadian government as the main reason the order.
As a result, Bombardier needed to secure an order from another major North American airline to validate the long-term viability of the C Series.
After failing twice to secure orders from United Airlines this year, Bombardier finally struck pay dirt with Delta.
The fallout from the Delta deal will likely have far-reaching implications for Bombardier.
"The Delta order has generated a lot of optimism around the C Series program," Moody's vice president and senior analyst Jamie Koutsoukis told Business Insider.
However, Bombardier is not out of the woods yet financially.
"The debt load is still very onerous considering the capital intensive nature of their business," Koutsoukis added.
Benjamin Zhang/Business InsiderThe C Series won't be profitable until 2020 and Bombardier is expected to sink another $2 billion into the program. The company also announced, recently, that it will take a $500 million charge in the second quarter of 2016 on 127 aircraft, meaning the planes sold to Delta were likely sold at loss of up to $4 million per plane.
Fortunately for Bombardier, the company seems to have a very good plane on their hands.
Virtually everyone who has experienced the C Series are universal in their praise for the aircraft. However, with just 318 total firm orders, Bombardier desperately need to convert interest into customers.
However, many of the plane's potential buyers have been scared off by the lack of C Series orders.
Benjamin Zhang/Business InsiderAirlines feared that Bombardier's struggles to sell the airplane could lead to the program being killed off, or even worse, that Bombardier itself could go out of business.
In that case, anyone left operating the planes could be stuck with astronomical maintenance costs.
Now, with the not-so-tacit endorsement of one of the world best run and most profitable airlines, Bombardier may finally be able to be able to allay some of those fears.
In addition, with the CS100 set to enter service with SWISS this summers potential buyers will, for the first time, be able to analyze actual performance and efficiency data from the aircraft.
Benjamin Zhang/Business InsiderAirlines interested in the jet include such industry heavy hitters as JetBlue. The New York-based boutique carrier had been kicking the tires on the C Series for months until talks broke off earlier this year. However, according to Bloomberg, JetBlue and Bombardier are reportedly set to resume negotiations over a potential C Series order.
Even though Bombardier is not fully out of trouble, optimism is the new name of the game for the company.
"They went into a market with a new aircraft type, there was always going to be a lot for growing pains," Koutsoukis said. "Airplane programs have 20 to 30 year life cycles and in the long run, there will be profits."
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