Published on May 1st, 2016 | by Jim Lee0
Bombardier sign its largest C Series order as it announces financial results for the 1st Quarter of 2016
On 28th April, Bombardier Commercial Aircraft announced that it had executed a firm agreement with Delta Air Lines, Inc. of Atlanta, Georgia (Delta Air Lines), for the sale and purchase of 75 CS100 aircraft, with options for an additional 50 CS100 aircraft. This order – the largest in Bombardier Commercial Aircraft history – also makes Delta the C Series aircraft’s largest customer and based on the list price of the CS100 aircraft, the firm order is valued at approximately $5.6 billion (around €4.89 billion). The announcement was made as Bombardier posted its financial results, for the 1st Quarter of 2016.
Deliveries are scheduled to commence in spring 2018 and Delta Air Lines may elect to convert a number of these aircraft into the CS300 model, at a later date. As the United States CS100 launch customer, this order will help Delta reshape and modernise its domestic fleet, with an aircraft that represents the fusion of performance and technology, in a 100% all-new design, that offers operators, up to $13 million (around €11.35 million), in extra value per aircraft.
Commenting on Delta’s decision to order the Bombardier aircraft, Ed Bastian, Delta’s incoming Chief Executive said; “As we reshape our fleet for the future, the innovative on-board experience of the C Series is a perfect complement for the top-notch service provided every day by Delta people.” He added “These new aircraft are a solid investment, allowing us to take advantage of superior operating economics, network flexibility and best-in-class fuel performance.”
“Welcoming Delta Air Lines to the C Series family of operators is a watershed moment for our game-changing aircraft. As an industry leader, Delta consistently ranks first with customers, business leaders and its peers – a benchmark for operational performance,” said Fred Cromer, President, Bombardier Commercial Aircraft. He went on “This order is a resounding endorsement of the CS100 aircraft performance and its exceptionally low operating costs. In addition, its widest aisle, widest seats and largest bins in its class will be attractive features for Delta’s passengers.”
Indeed, by employing advanced materials, state-of-the-art technologies and advanced aerodynamics, combined with the Pratt & Whitney PurePower® PW1500G engine, the CS100 is delivering a 15 to 20% fuel burn advantage, compared to other re-engined aircraft. Its cabin design with 19” (483 mm) wide seats, large overhead bins that accommodate a carry-on bag for each passenger, and the largest windows in the single-aisle market, set a new industry standard. Together, these attributes create a widebody feel that offers passengers, an unparalleled level of comfort. It is also the quietest in-production commercial jet, in its class. See video below.
Welcoming the order by Delta Air Lines, Michael Ryan, Vice-President and General Manager, Bombardier Belfast, said: “We’re delighted that another customer has placed such a significant order for the C Series aircraft. This is a further endorsement of the aircraft’s excellent operating economics and environmental credentials, to which we in Belfast are contributing with the production of the advanced composite wings”.
He added; “We believe the unique, patented process we’ve developed represents a step change in aircraft wing technology, and is strengthening the UK’s strategic goal of being the world leader in aircraft wing design and manufacture”.
Delta has long had an interest in the C Series and this was evident even before the C Series unveiling by Bombardier, at the 2011 Paris air show, when the type was still more than two years away from a then-scheduled entry into service of the end of 2013. In a 2010 interview with Flightglobal, outgoing Delta CEO Richard Anderson called the C Series, an “airplane that has substantially better fuel efficiency than the existing single-aisle airplanes in service today”. Notwithstanding the fact, that incoming Delta Air Lines chief executive Ed Bastian, had said on 14th April, that no decision on a new narrow-body order had been made, there was rising confidence that Bombardier’s intense marketing efforts would be successful. Delta has long been a cherished customer for Bombardier, having launched the 50-seat jet regional revolution in the 1990s, with an order for CRJ100s.
However, as the delivery date slipped and as technical and financial challenges mounted, Delta’s interest in the aircraft cooled, and by 2013 Mr. Anderson was flatly ruling out the type as a contender for Delta’s small narrow-body aircraft replacement. The new Bombardier leadership team, who took over in the first half of 2015, focused on the market’s call for sales discounts and with Delta’s noted preference for the lowest possible price, their interest in the aircraft was renewed. A C Series test aircraft visited Atlanta in December, where it drew a personal inspection by Mr. Anderson, who was soon acknowledging that the airline was taking, a “serious interest” in the aircraft. In addition, Bombardier efforts in securing “one or two” blockbuster deals, seems to have paid off, with Delta joining Air Canada, who committed to buy up to 45 CS300s, in February.
Financial Results for the First Quarter of 2016
Coinciding with the Delta order, which will see the programme entering into service with a backlog of more than 300 aircraft, or up to 800 aircraft including all options and commitments, Bombardier announced its financial results, for the first quarter ended 31st March 2016. Bombardier, headquartered in Montréal, Canada, is the world’s leading manufacturer of both aircraft and trains making them a global leader in transportation. Its first quarter financial results show:-
- Revenues of $3.914 billion (around €3.42 billion); backlog of $58.9 billion (around €51.43 billion). Revenues in the same period in 2015 amounted to $4,397 billion (around €3,84 billion),
- EBIT (earnings or loss before financing expense, financing income and income taxes) of $56 million (around €48.9 million); EBIT before special items of $130 million (around €113.5 million),
- Recorded $112 million (around €97.81 million) special charge for workforce optimisation,
- Free cash flow usage of $750 million (around €655 million) driven by cash outflows from operating activities of $456 million (around €398.22 million). This compares to free cash usage of $745 million (around €650.6 million) with outflows of $366 million (around €319.6 million) in 2015.
- Strong pro forma liquidity at $5.4 billion (around €4.72 billion). Pro forma liquidity reflects the revisions to the Corporation’s revolving credit facilities effective in April 2016 and the expected gross proceeds of the investment from the Government of Québec in the C Series aircraft programme.
Commenting on the results, an obviously pleased Alain Bellemare, President and Chief Executive Officer, of Bombardier Inc. said; “Our turnaround plan is gaining traction. We delivered on our commitments for the first quarter and we remain on track to achieve both our 2016 guidance and 2020 goals. Our decisive actions to improve our operations and business model across all our businesses are starting to pay off.”
However, no mention was made of Bombardier’s ongoing discussions with the Canadian Federal government, for a $1 billion (around €873.29 million) investment, in its C Series aircraft, amid reports that the two sides are still not close to reaching agreement. This makes the target of reaching agreement, before Bombardier’s annual general meeting on 29th April, unlikely.
Canada’s Innovation Minister Navdeep Bains, who is in control of the negotiations, in confirming that the two sides were still talking, revealed some details of the discussions.
“We’re focused very much on R and D investment in Canada, the fact that the C Series continues to be… produced here in Canada that the head office remains here. It’s about good quality jobs,” he said.
“It’s about the long-term success of the company and the sector… We want a strong, vibrant aerospace sector in Canada, and that is a priority for this government” he added. The Government is also reportedly demanding certain performance guarantees from Bombardier and it has been reported that they could walk away, from what were described as, “complex and multi-dimensional” negotiations. It is also said to be concerned by the company’s dual class share structure, which gives the Bombardier-Beaudoin family, effective control over the firm. The two sides are also divided on the level of the Canadian government’s involvement in the day-to-day running of the company, with sources suggesting that the Government’s proposals for operational oversight, in return for funding, represent “a level of micro-management that is beyond what any normal investor or board member would expect”.
Other Selected Result comparisons on 2015
Three-month period ended 31st March 2016 2015
EBIT margin 1.4 % 5.2%
EBIT margin before special items 3.3 % 5.4%
EBITDA margin before special items 5.6 % 7.8%
Diluted EPS (in dollars) ($0.07) $0.05
Diluted EPS (in euros) (€0.06) €0.04
Adjusted EPS (in dollars) ($0.03) $0.09
Adjusted EPS (in euros) (€0.025) €0.08
As at 31st March 2016 31st December 2015
Available short-term capital resources $4,675 (€4,083) $4,014 (€3,505)
Segmented Results and Highlights
Given Bombardier’s diverse transportation interests, we will look in detail at three of its four business segments, Business Aircraft, Commercial Aircraft and Aerostructures and Engineering Services. Looking at Commercial Aircraft first, (see highlights here), Bombardier notes that production for the C Series aircraft programme is accelerating, diluting the EBIT margin as planned. During the first quarter of 2016, free cash flow usage related to the C Series aircraft programme, amounted to approximately $200 million (around €174.66 million), and remains in line with their target of $1 billion (around €873.29 million), free cash flow usage for the programme in 2016.
Subsequent to the quarter, in February 2016, Bombardier signed a Letter of Intent with Air Canada and in the second quarter of 2016, Bombardier expects to sign a firm purchase agreement for 45 CS300 aircraft with options for an additional 30 CS300 aircraft, including conversion rights to the CS100 aircraft. Based on list price of the CS300 aircraft, the firm order is valued at $3.8 billion (around €3.32 billion). In addition, Air Baltic Corporation AS, converted its remaining seven options to firm orders for the CS300 aircraft. This agreement follows the airline’s conversion of three option aircraft announced in February 2014. The original order for 10 firm CS300 aircraft, with options for another 10, was announced on 20th December 2012. The Riga-based airline will be the first customer in the world to operate the CS300 aircraft, when it takes delivery of its first, in the second half of 2016. Bombardier says that they will be an excellent companion to the airline’s existing 12 Q400 aircraft. Based on list price, the Air Baltic firm order is valued at $506 million (around €441.88 million). These orders are in addition to the Delta order described above.
These anticipated 127 firm orders are valued at $9.9 billion (around €8.65 billion), based on list prices. They build confidence and reinforce Bombardier’s five-year plan for the C Series aircraft programme. In conjunction with the closing of these firm purchase agreements, Bombardier will record an onerous contract provision of approximately $500 million (around €436.64 million), as a special item, in the second quarter of 2016. As a result of these orders, the programme is expected to enter into service with a firm order backlog of more than 300 aircraft and up to 800 aircraft including options and other agreements. Bombardier remains on target to invest $2 billion (around €1.75 billion) and achieve a break-even free cash flow for the programme by 2020.
The company continues to prepare for the entry into service of the CS100 aircraft, with the first aircraft to be delivered to Swiss International Air Lines in June 2016 (see here).
Subsequent to the end of the first quarter, Chorus Aviation Inc. signed a firm purchase agreement for five CRJ900 aircraft. The order also includes purchase rights for an additional five CRJ900 aircraft. Based on the list price of the CRJ900 aircraft, the firm order is valued at $229 million (around €200 million). The aircraft will be operated by Jazz Air for Air Canada, under the Air Canada Express banner.
Bombardier Commercial Aircraft had previously disclosed on 26th April, that Trident Jet (Jersey) Limited, a sister company of Falko Regional Aircraft Limited, was the previously unidentified customer that signed the firm purchase agreement for eight CRJ900 aircraft and six options announced in October 2015. The aircraft are assigned to and operated by CityJet, on a wet lease basis to SAS (Scandinavian Airlines). Bombardier also announced that Trident Jet (Jersey) Limited has exercised four of its options and these aircraft will also to be operated by CityJet (see more below). Based on the list price of the CRJ900 aircraft, the value of the exercised options for four CRJ900 aircraft is approximately $183.9 million (around €160.6 million).
Looking at Aerostructures and Engineering Services, (see highlights), the level of intersegment activity is increasing, as the C Series aircraft programme ramps-up towards full production. Aerostructures and Engineering Services manufacture cockpits and all-composite wings for the CS100 and CS300 aircraft.
Finally, looking at Business Aircraft, performance on revenues and deliveries was as anticipated for the first quarter of 2016, reflecting the proactive decision to reduce production rates (see highlights).
Strong sales activity during the period yielded net orders for 40 aircraft, with a book-to-bill ratio of 1.3. This includes a firm order for 20 Challenger 350 aircraft from an undisclosed customer, valued at $534 million (around €466.33 million) at list prices.
EBIT margin before special items was essentially preserved, compared to the same period last year, despite lower volumes, reflecting the positive impact of Bombardier’s business model enhancements and transformation activities. Special items related to restructuring charges and decreased by $6 million (around €5.24 million), compared to the same period last year.
In March 2016, the Challenger 650 aircraft received full type certification from the European Aviation Safety Agency. The aircraft received type certification from Transport Canada and the Federal Aviation Administration in November 2015, and entered into service in the fourth quarter of 2015.
Bombardier denies plans to help launch Iranian carrier
Bombardier company spokesperson Marianella de la Barrera has confirmed, that while it is in talks about the sale of aircraft to several undisclosed Iranian carriers, it has no plans to participate in the establishment of any new airline company there. This followed press reports linking Bombardier to the signing of a Memorandum of Understanding, with officials from Iran’s Qeshm Free Zone, for the establishment of an airline. This is believed to refer to Fly Qeshm (Gheshm), a joint-venture between Iran and China, announced in February, which plans to commence passenger flights later this year, using aircraft sourced by its Chinese shareholders.
Trident Jet purchase agreement for eight CRJ900 aircraft
During a special event held at Bombardier’s Mirabel, Québec facility, Bombardier and CityJet celebrated the delivery of the first five of eight CRJ900 aircraft, ordered in October 2015. Included amongst the deliveries, was Bombardier’s milestone 400th CRJ900 aircraft, bearing serial number 15400. This aircraft was registered as EI-FPC to CityJet Ltd, on 30th March and delivered the following day Montréal–Mirabel to Helsinki, via Keflavik, in full SAS colours.
“Celebrating new customers is always a pleasure and we also congratulate Trident Jet (Jersey) Limited on its additional CRJ900 aircraft acquisition as well as operator CityJet on the welcome addition to its growing CRJ fleet; this signals the airline’s confidence that the CRJ900 aircraft will deliver the outstanding performance for which it is well known,” said Colin Bole, Senior Vice President, Commercial, Bombardier Commercial Aircraft. “CityJet has serviced some of Europe’s best airlines over the years and we are confident that the airline’s CRJ900 aircraft will complement this operation.”
Bombardier and Fokker renew Agreement to Support Dash 8/Q Series 100/200/300 aircraft
On 26th April, Bombardier Commercial Aircraft announced that it had renewed a strategic alliance with Fokker Services, which is a subsidiary of Fokker Technologies, a GKN Aerospace division, to provide the industry-leading ABACUS FLY programme to operators of Dash 8/Q Series 100/200/300 aircraft. The renewal extends the alliance by three years.
ABACUS is the longest running Component Availability programme in aviation history, supporting more than 200 aircraft and currently serving 26 operators of regional aircraft, such as the Dash 8/Q Series 100/200/300 and CRJ Series aircraft for more than 20 years. The programme can be tailored to combine maintenance services and inventory lease with guaranteed availability and service levels. It focuses on cost predictability and increased component reliability for more time on-wing. ABACUS members have access to extensive exchange pools located in the USA, Europe and Asia and are supported by a 24/7 staffed AOG desk. It is aimed at improving the availability of components and reducing operator’s repair and overhaul costs. The programme provides customised services on a cost-by-the-hour basis, allowing operators to better manage the life-cycle costs of their aircraft.
Fokker can trace its history back to 1919 and is headquartered in Papendrecht, the Netherlands. Fokker Technologies operates facilities in the Netherlands, Romania, Turkey, Canada, Mexico, USA, China, India and Singapore, and employs approximately 4,900 people.
“For the past five years, Fokker’s ABACUS FLY programme has provided our operators and their Dash 8/Q Series 100/200/300 aircraft with dedicated, comprehensive support via guaranteed availability of serviceable components,” said Todd Young, Vice President and General Manager, Customer Services, Bombardier Commercial Aircraft. “Dash 8/Q Series aircraft are in service with more than 150 operators worldwide and our collaboration with Fokker Services has been instrumental in providing customers with the necessary service to run their operations efficiently and reliably for years to come” he added.
The Q Series family of aircraft combines advanced technology and superior design features to provide the ruggedness and performance, required in the high-frequency, short-haul regional airline environment. The flexibility of the Q Series family of aircraft has also resulted in its being adapted for a wide variety of non-airline roles such as cargo service, medical evacuation, corporate transport, airways and navigation aid calibration, navigator training and maritime patrol, with over 1,100 currently, in service.
On 6th April, Bombardier Commercial Aircraft welcomed Kinshasa-based Congo Airways, the flag carrier of the Democratic Republic of the Congo, to the family of Q400 aircraft customers and operators. The airline, which started operations in October 2015, joined the Q400 aircraft family, when it launched service with a previously owned 76-seat aircraft that was acquired from a third party.