WASHINGTON—In a sign that Bombardier’s turnaround plan has boosted confidence in the company, analysts shrugged off news that it will cut planned deliveries of the C Series by more than 50% this year because of delays in engine deliveries from Pratt & Whitney.
Bombardier has adjusted its delivery forecast for 2016, its first year of C Series production, down to seven aircraft from 15, blaming a “supplier ramp-up issue” at Pratt. The engine maker is also ramping up production of geared turbofans for the Airbus A320neo.
The aircraft manufacturer warns the reduction in deliveries will result in lower revenues for the year at Bombardier Commercial Aircraft, but without material affecting earnings. Free cashflow usage will increase, however, to $1.15–1.45 billion from the previously forecast $1–1.3 billion.
“With any new aircraft program, minor production ramp issues are … expected. The key will be if this becomes a recurring development … or whether Bombardier and its suppliers can effectively meet its delivery requirements on an ongoing basis,” said Walter Spracklin, an analyst at RBC Dominion Securities.
“We do not see any material implications from the new C Series guidance, as we believe the engine-supply issue is likely new-product teething pain that should dissipate with time,” said David Tyerman, an analyst with Cormark Securities.
Cormark has reduced its forecast for Bombardier’s revenues in 2017, but mainly to account for more cautious business-jet deliveries. “For now, I am assuming this is a short-term teething issue and that production will catch up through 2017,” Tyerman said.
Bombardier will deliver the first CS100 to C Series launch customer Swiss International Air Lines in October, and still plans to deliver the first CS300 to AirBaltic in the fourth quarter.
“The production ramp-up issue at C Series engine supplier Pratt & Whitney is relatively minor in our view and does not change our long-term thesis on Bombardier,” said Cameron Doerksen, an analyst with National Bank Financial. “Our positive view is based on … a much more viable C Series program with the potential for near-term new orders; Bombardier’s financial position is much more secure; [and] although still in the early stages, we believe the margin turnaround is starting to take hold.”
The Quebec provincial government completed its $1 billion investment in the C Series program last week, and Bombardier said it expects to end 2016 with strong liquidity. The airframer remains on track to be cashflow-neutral by 2018 and to meet its turnaround objectives by 2020.
“We are working very closely with Pratt & Whitney to quickly address this supplier ramp-up issue and to ensure we have a strong supplier base to support our long-term growth objectives,” Bombardier Commercial Aircraft President Fred Cromer said. “We are very confident in our production ramp-up plan, including our ability to meet our production goal of 90–120 aircraft per year by 2020.”
“In terms of production, we’ve made significant headway in the supply chain, but there is some pressure on new engine deliveries for this year. We are working closely with our customers on the delivery schedule, and we are keeping them apprised of the progress being made,” a spokesman for Pratt & Whitney said.
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