Even though the 2015 financial results Bombardier announced on Wednesday (February 17) included charges of $5.6bn – mainly to accomplish the “de-risking” of its aircraft programmes – the Montréal-based manufacturer is today feeling more positive about its commercial-aircraft business than it has for a long time.
Not only has the Government of Québec pledged more financial investment should Bombardier not receive the cash injection it is seeking from the Canadian Federal Government, but at last the company has secured the first very large North American airline customer it has been seeking for years for the CSeries.
Couple that with Bombardier’s well-received announcement on Wednesday at the Singapore Airshow that from 2018 a 90-seat, higher-payload version of its popular Q400 high-speed turboprop regional airliner will be available – and also that it is increasing the intervals between the Q400’s scheduled-maintenance checks – and one can see why the Canadian company feels optimistic.
Air Canada’s decision to order Bombardier CS300 jets for its mainline fleet is no insignificant matter for Bombardier. The decision provides several different fillips to Bombardier’s CSeries sales efforts.
Not only does it end a CSeries order drought which has lasted 16 months (a period during which some existing CSeries deals, such as Gulf Air’s 10-CS100 order and Republic Airlines Holdings’ 40-CS300 purchase, have come into question). The Air Canada order also is large enough and the carrier in question so high-profile that in one bound the CSeries programme has been rejuvenated.
The Air Canada deal, which as yet is a letter of intent to order 45 CS300s and secure options on 30 more (while also giving the airline the right to convert any delivery position to a CS100 should it wish), boosts the CSeries programme in several potentially important ways.
For one thing, the Air Canada order represents a direct slap in the face to Embraer, Bombardier’s biggest rival in the 70-to-130-seat market. For many years Air Canada has been a sizeable operator of the Embraer E-Jet family, the carrier operating 45 Embraer 190s.
Although Air Canada is disposing of 20 of its 190s in the next two years through Boeing as part of Air Canada’s deal to order Boeing 737 MAX aircraft (the 20 Embraer 190s will then go to Delta Air Lines as part of another complicated Boeing deal), Air Canada will retain up to 25 Embraer 190s until it starts receiving its Bombardier CS300s and/or CS100s.
Air Canada has already said it will use some of the 45 C Series jets to replace the remaining Embraer 190s in its mainline fleet. This means Air Canada has chosen the CSeries over its nearest direct new competitor, the Embraer E-Jet E2 family, which might have been thought the airline’s more likely choice for replacing its existing E-Jets.
Another positive for both Bombardier and Air Canada is that because both companies are domiciled in Canada and their base currency is the Canadian dollar, the big purchase can be conducted without any exchange-rate risk being involved.
Yet another fillip for Bombardier’s CSeries sales prospects is that because the big Canada-US transborder market is highly competitive, Air Canada’s order will force its major competitors and partners to take a very close look – in some cases for a second or even a third time – at CSeries jets’ undeniable attractions in terms of operating economics and passenger experience.
Although United Airlines recently announced an order for 40 new mainline Boeing 737-700s to replace some of the franchisee-operated regional jets now flying on its network, Bombardier has said this week that it does not believe a potential deal with United for a sizeable number of C Series aircraft is dead.
United’s overall requirement for 100-to-130 seat new aircraft to replace smaller regional jets is thought to be 100 aircraft, not 40, potentially leaving a fleet gap of 60 aircraft United will need to fill in the next few years. As long as oil and fuel prices remain extremely low, the 737-700 makes good sense for United; but should oil prices increase, which one day they must, the ageing Boeing design just isn’t competitive with the CS100 and CS300 in terms of operating economics.
Also, like Air Canada, United Airlines is a founding member of Star Alliance. United and Air Canada work closely to integrate their service products and schedules in many short-haul and long-haul markets. United will quickly learn from Air Canada exactly what benefits that operating CSeries jets might confer.
Swiss International Air Lines, a member of the Lufthansa Group and the launch customer for the CS100, is also a Star Alliance member. Now that two major Star Alliance carriers have shown strong confidence in the CSeries, it is clearly possible other Star Alliance member airlines may want to give the new Canadian jet family strong weight in their fleet-planning analyses.
Talking of alliances, Korean Air Lines, another CSeries customer, is a leading member of the SkyTeam Alliance. So is Delta Air Lines, currently one of the two most profitable carriers in the world.
Richard Anderson, Delta’s long-running and much-respected CEO, recently called the CSeries “a pretty impressive airplane” and Bombardier is known to have been in talks with Delta over a large potential order for CSeries jets.
It is not inconceivable that Air Canada’s landmark decision to order up to 75 CSeries aircraft could help to persuade Delta it should buy the Canadian aircraft. Delta has a strong US-Canada transborder route network and in Detroit it boasts a major hub which is closer to a very large Canadian population centre (southern Ontario) than any other large US hub airport.
Last but not least, Air Canada has a sizeable and very successful domestic and international competitor in WestJet. Already a big Bombardier customer through ordering 36 Q400s and optioning nine more for its regional arm WestJet Encore, WestJet has stuck to operating just one mainline aircraft family – the 737 – until recently.
Now, however, WestJet has begun operating 767-300ERs as well, so its crew scheduling, training, maintenance and customer-service activities have become much more complex.
As WestJet continues to grow profitably, it appears distinctly possible that the competitive pressure it feels as a result of Air Canada operating quiet, spacious, fuel-sipping new CSeries jets, together with the Canadian public’s desire for WestJet to operate home-grown aircraft, could persuade it to add a third aircraft family to its fast-growing fleet.