WestJet looking at slowing down Q400 deliveries

In another possible blow to Bombardier Inc., WestJet Airlines Ltd. is in talks with the struggling company to slow down deliveries of the Q400 turboprops it has on order, part of a broader strategy to cope with Alberta’s deteriorating economy.
In an editorial board meeting with the Financial Post, WestJet CEO Gregg Saretsky said the airline is “looking for ways to tap the brakes without jamming them on.”
“We’re in discussions with Bombardier about slowing the deliveries of Q400s, but they’re hardly in a position to talk about slowing anything,” Saretsky said, pointing to the company’s stock price, which has been trading below $1 for the past two weeks.
WestJet is also in discussions with Boeing Co. about deferring delivery of three new 737s, and plans to return nine leased aircraft to their owners by 2017 — the first time in the airline’s history it has not renewed leases.
Bombardier spokeswoman Marianella de la Barrera said the company is always open to engaging with its customers but doesn’t know of any changes to its Q400 delivery schedule.
“I can tell you that our plans for the Q400, our production plans and schedules, are pretty firmed up for the year,” she said. “As far as I know there isn’t any change to that.”
Last month, Macquarie analyst Konark Gupta predicted that Bombardier will report a “potentially significant” year-over-year decline in aircraft deliveries when it releases results on Feb. 17.
The company hasn’t recorded a new firm order for its CSeries jetliner since September 2014 and is hoping its other products, like the Q400, will generate enough revenue to keep it going while it hunts for customers.
In total, WestJet has 10 Q400s scheduled for delivery this year and another two in 2017. Its regional carrier, Encore, uses the turboprops for its short-haul flights.
Saretsky also weighed in on Bombardier’s ill-fated CSeries, which he said “wasn’t designed for the Canadian carriers.”
“It’s too small,” Saretsky said of the 100- to 150-seat aircraft. “Both ourselves and Air Canada are buying bigger and bigger jets for domestic flights.”
WestJet recently sold 10 of its smaller Boeing 737-700 aircraft to Southwest Airlines Co. and replaced them with the larger 737-800. Between those and the Q400s, Saretsky said the airline has everything it needs to serve the Canadian market.
WestJet’s fourth-quarter profit and revenues took a hit from the slumping Alberta economy, where approximately 25 per cent of the airline’s business originates. The stock price has followed suit, and is down 24 per cent year to date.
Investors haven’t been happy with WestJet’s plan to increase capacity by seven to 10 per cent this year despite the slowdown in Alberta, and worry it isn’t acting fast enough to shift capacity out of the province.
But Saretksy said the airline is still in a healthy position, and he doesn’t understand why the stock has fallen so much.
“Even with all of this economic (pressure), the consensus estimate on WestJet’s earnings this year is going to put us among the best five in our 20-year history,” he said.
“Why is the stock trading down more than 50 per cent (from its highs)? I have no idea. I’ll call it investor skittishness and time will tell, but I’m not managing our business for the next quarter and people seem to be very focused on the next quarter.”
Financial Post