Under pressure from Brazilian rival, Bombardier ramps up Chinese partnership
Pierre Beaudoin, front left, President and Chief Executive Officer, Bombardier Inc and Jin Zhuanglong Chairman, COMAC shakes hands in Shanghai, China on Wednesday March 21, 2012. (THE CANADIAN PRESS/HO-Bombardier)
Published Monday, June 17, 2013 12:19PM EDT
Last Updated Monday, June 17, 2013 2:14PM EDT
MONTREAL -- Bombardier is ramping up its relationship with Chinese aircraft manufacturer Comac amid intensified pressure from Brazilian rival Embraer, which plans to launch a new line of regional planes.
The Montreal-based manufacturer said Monday that it signed a new agreement with Comac to enhance commonalities between its CSeries and the C919 widebody aircraft from Commercial Aircraft Corporation of China Ltd.
The latest agreement will require the two companies to collaborate on areas of non-flying flight testing, sales and marketing, and customer services related to training, technical publications and parts distribution.
"The second phase of Comac and Bombardier's co-operation is expected to contribute further to enhancing the competitiveness of not only the C919 and CSeries aircraft programs, but also of both Comac and Bombardier's overall businesses," Bombardier said on the first day of the Paris Air Show.
It said the agreement will help each partner maximize cost savings and market share, while allowing customers to gain cost benefits from operating both aircraft.
The strengthening relationship is expected to facilitate a number of CSeries orders in the world's largest potential new aerospace market. However, Bombardier (TSE:BBD.B) has yet to receive any orders from China for its new CSeries family of jets.
Walter Spracklin of RBC Capital Markets said the expanded agreement signals that a Chinese order is advancing.
"We would view a Chinese order as a significant catalyst as it would both entrench the CSeries in a growing region as well as add breadth for potential orders from leasing companies," he wrote in a report.
Spracklin said Bombardier officials signalled Monday that the maiden flight of the CSeries could happen within about six days.
The 90-minute test will include a series of banking manoeuvres with real-time data and engine performance fed to existing and perspective customers.
Bombardier (TSX:BBD.B) said some customers are awaiting confirmation of the plane's performance, so the flight would be a catalyst for new orders, the analyst said. The company signalled it plans to deliver 15 CS100 airplanes in 2014, and between 110 and 120 of the planes per year by 2017.
The Canadian manufacturer's efforts come as Embraer (NYSE:ERJ) announced at the Paris Air Show the launch of a second generation of E-Jets.
The first of three E2 family of planes is expected to enter service in the first half of 2018, followed by other planes in the following two years.
"The launch of the E2 builds on our vision to offer leading-edge commercial jets with a capacity right-sized for 70 to 130 seats," said Embraer CEO Frederico Fleury Curado.
The E175-E2 will accommodate up to 88 passengers, the E190-E2 will maintain its size for up to 106 seats and the E195-E2 will accommodate up to 132 seats or 118 seats in dual classes, putting in a competition with the CS100, which will have 110- to 125 seats.
The Embraer planes will be powered by Pratt & Whitney's geared turbofan engine -- used on the CSeries -- and promises to offer similar operating costs as Boeing and Airbus' smaller re-engined airplanes.
SkyWest is the launch customer, signing a firm order for 100 E175-E2 aircraft, with options for another 100 aircraft. The 200 aircraft would be valued at US$9.36 billion at list prices.
Spracklin said the updated Embraer aircraft puts pressure on Bombardier's old CRJ regional jet and CSeries products.
He said Embraer will have an advantage winning orders with existing customers because cockpits on the new planes will be similar to the planes in service.
"We believe that it will be a tough sell for competitor airframers to displace Embraer in the future with airlines that have the current E-Jet family in their fleets," he wrote.
With its longer range and better anticipated economics, the all-new CSeries will "provide for enough of a differential such that the two products will largely target two different customer bases," Spracklin said.
But he said the E2 will better compete against Bombardier's CRJs.
Bombardier responded by saying its existing products are able to compete, but Spracklin believes the company will need to either launch a new regional jet or concede market share in the regional jet segment.
Meanwhile, Bombardier identified the buyer for one of its previously announced orders for 10 CSeries passenger jets.
It said an order announced two years ago was placed by Odyssey Airlines, which plans to operate business-class service from London City Airport.
Bombardier said the CS100 jets ordered by Odyssey have a list price of US$628 million.
The company has received commitments for 388 CSeries aircraft, including 177 firm orders.
On the Toronto Stock Exchange, Bombardier's shares were up four cents at $4.72 in afternoon trading Monday.