Bombardier Inc. announced Wednesday it would be delaying the first flight and entry into service of its new CSeries aircraft by six months.
The Montreal manufacturer said it was making “solid progress” in the program since the start of the year, but that it now expected the first flight to occur the end of June 2013 rather than its original target for the end of 2012.
The aircraft’s entry into service will occur roughly one year after first flight after issues arose with some of its unnamed suppliers, the company said.
The CSeries was originally expected to be delivered to is first customer by the end of 2013.
“Since the beginning of the year, substantial headway has been made in the CSeries development program and testing is progressing well,” said Pierre Beaudoin, Bombardier chief executive, in a statement. “We have used the momentum gained over the last few months to meet a number of key milestones, however, some areas require more time.”
He said the company had worked with its suppliers to harmonize all their commitments to the program, but that required the first flight of its new 110 to 145 seat aircraft to slip to the end of June.
“We will continue to give regular updates on the program, with a more detailed review during the first quarter of next year,” he said.
The news of the slippage was not entirely unexpected after the company acknowledged the assembly schedule for the first test flight vehicle was compressed. Although most analysts had been expecting a delay of just a few months, and warned that anything more than six months would have a serious impact on the program.
Fadi Chamoun, BMO Capital Markets analyst, said he didn’t expect the news about the CSeries would be well received because it implies continued uncertainty well into 2013.
But he said it was unlikely to have a dramatic impact on the overall program at this point.
“The delay of the CSeries while disappointing, is not surprising and likely has very minor consequence on the program’s economics,” he said.
Bombardier, for its part had maintained the program was on track up until Wednesday when it released its third quarter results.
The company said a number of key milestones have already been met, but at this point in the program the Aerospace group has encountered some unspecified issues, mainly related to some of its suppliers, the company said.
While no specifics were given, the company has said in the past that its fly-by-wire electronic controls were at the top of its list of concerns.
It also was forced to repatriate some of the aircraft’s fuselage work from its Chinese supplier to Bombardier’s plant in Belfast.
The company said at this point the timeline for the larger version of the aircraft, the CS300, which represents a significant portion of the program’s orders and commitments, remains unchanged with entry into service at the end of 2014.
Cameron Doerksen, National Bank Financial analyst, said the delay will not likely lead to any order cancellations, but could put off any new ones until more certainty on the development timeline is given.
He estimated the delay could cost the company roughly $500-million in additional cost. But he noted the company had $3.5-billion in available cash, so liquidity wasn’t a concern.
“We think a June 2014 target is realistic and achievable, but Bombardier’s credibility will take a hit and we believe that the market will be skeptical of the schedule until the plane actually flies,” he said in a note to clients.
“However, we do not think a six month delay will hurt the CSeries program in the long run. Indeed, Airbus and Boeing have experienced much longer delays on new aircraft programs with little impact on orders,” he added.
The news comes as Bombardier reported a third quarter ahead of expectations.
The company said it earned $212-million, or 12¢ a share, during the quarter compared to $192-million, or 11¢ a share, a year ago.
Analysts had been expecting earnings of 10¢ a share, according to Bloomberg estimates.
Revenue fell to $4.3-billion from $4.6-billion a year ago.
The company said its earnings before interest and tax margin was at 5.7%, compared to 6.5% last fiscal year as the timing and start up costs of several rail contracts dragged on its earnings.
The company said it would be undergoing a restructuring of train division including the sale of a plant in Germany and other measures to improve its cost structure.
“Although the economy remains sluggish, our product and geographic diversification have allowed us to continue building a strong backlog of $58.6-billion while investing in new platforms and maintaining stable results. The years ahead promise to be exciting as we start seeing our new products come to life,” Mr. Beaudoin said.
Source Article from http://business.financialpost.com/2012/11/07/bombardier-delays-first-cseries-flight-by-six-months/
