It was a rough end of June for Canadian manufacturer Bombardier, Inc. (TSE:BBD.B). With high hopes resting on its new C Series airliner, the plane received no new orders at the Paris Air Show and the company decided to delay the inaugural flight of the C Series until the end of July. Shares of Bombardier, Inc. (TSE:BBD.B) have reflected this disappointment and have fallen well off their peak of around CAD$5 per share.
C Series troubles, rivals successes
While the Bombardier, Inc. (TSE:BBD.B) C Series did not tally any new orders at the Paris Air Show, regional jet rival Embraer SA (ADR) (NYSE:ERJ) made airplane orders headlines announcing multiple big unit orders. Reuters reports some of these orders originated from regional operator SkyWest and American International Group’s aircraft leasing subsidiary, International Lease Finance Corp. Some analysts have even gone as far to say that these Embraer SA (ADR) (NYSE:ERJ) orders threaten the C Series due to the larger size of the latest Embraer jets.
With these new orders for hundreds of aircraft, Embraer’s backlog of orders has increased showing a strong demand for the manufacturer’s aircraft. Most analysts expect an increase in earnings per share over the next few years to reflect Embraer’s fulfillment of these orders. While Embraer does have sufficient orders right now, the manufacturer is reportedly in talks with AMR Corp, parent of American Airlines about the purchase of regional jets for its American Eagle subsidiary. Talks for this deal are still happening behind closed doors so it is difficult to decide whether AMR will select Embraer SA (ADR) (NYSE:ERJ) or Bombardier, Inc. (TSE:BBD.B) for the jet deal. Whichever manufacturer that wins the sale should expect a boost in its share price to reflect an increase in future aircraft deliveries.
But the C Series, especially the larger CS 300, have a greater passenger capacity and Bombardier is targeting these planes at airlines in need of longer range aircraft. By contrast, Embraer’s jets are set to replace many existing regional jets, including outgoing Bombardier CRJ200s that are not economically efficient due to higher fuel consumption per passenger.
But perhaps the biggest disappointment for Bombardier, Inc. (TSE:BBD.B) investors and C Series followers was the delay of the aircraft’s flight from the scheduled end of June to the end of July. There is also an expectation that some carriers are waiting for the plane to take flight before placing orders meaning the flight delay could be delaying new C Series orders. Bombardier is voicing confidence in its July flight but we will still have to see the plane actually take flight before we can confirm it will indeed take off when Bombardier says it will.
On the flip side, this opens up the possibility of a wave of orders coming in during August providing a positive catalyst for Bombardier shares. This is in no way a guarantee but even the first flight should be seen as positive news by investors possibly giving lift to shares on its own.
Despite the large amount of press the C Series has been seeing lately, it is important to remember that Bombardier is a plane and train manufacturer. While the C Series is still waiting for its maiden flight, Bombardier looks closer to closing a CAD$1.6 billion train deal in the U.K. The Globe and Mail reports that Bombardier, Inc. (TSE:BBD.B)’s top competitor for the contract, Siemens AG (ADR) (NYSE:SI), has withdrawn from the bidding. The Globe says that Siemens AG (ADR) (NYSE:SI) has other orders on its hands that are already facing delays. One of these includes a high speed train order from Eurostar and another is a long delayed order from Deutsche Bahn. While Siemens does have a train division, the company itself does far more than just trains with parts of its business in everything from energy to healthcare. As a company many times the size of Bombardier by market cap, Siemens is unlikely to feel much of any pain from not winning this latest contract, especially with its train division already running near full capacity. The German manufacturer seems to have recognized its current limits in this part of its business and where Siemens AG (ADR) (NYSE:SI) leaves, Bombardier stands to gain.
While there are still other competitors for the contract, The Globe considers Bombardier to have “the inside track” in the bidding now as a result of Siemens’ departure. As part of the deal for winning the contract, Bombardier would likely build the trains in its Derby factory saving over a thousand British jobs in the process.