Bombardier Inc., struggling to find established airlines as buyers for its new CSeries airliner, is in talks about a possible order with JetBlue Airways Corp., two people familiar with the matter said.
The discussions are continuing, and no decision has been reached, said the people, who asked not to be identified because the deliberations are private. They gave no details on the size of any potential sale to JetBlue, whose fleet now consists of Airbus Group SE and Embraer SA aircraft.
Signing up JetBlue would let Bombardier make good on a pledge to add well-known carriers to a roster of CSeries buyers now dominated by lessors and small airlines. The only North American airline with a firm order is Republic Airways Holdings Inc., which said last year there was “no place” in its business model for the CSeries.
The CSeries is Bombardier’s biggest-ever jet, a step up in size from the company’s signature regional models. Now running more than two years late, the aircraft hasn’t won a firm sale since September 2014 and has drained cash as development costs ballooned $2 billion to $5.4 billion.
“We do not have any comment specific to Bombardier’s CSeries, but it is routine for us to meet with aircraft manufacturers,” said Doug McGraw, a spokesman for New York-based JetBlue.
Bombardier is also in talks with Air Canada regarding the CSeries, said one of the people familiar with the company’s plans. A CSeries test aircraft was recently on display at Toronto’s Lester B. Pearson International Airport, Air Canada’s main international hub. Air Canada decided in 2014 to keep some of its Embraer planes after considering the CSeries as an alternative.
Isabelle Arthur, an Air Canada spokeswoman, didn’t immediately return a call seeking comment. Isabelle Gauthier, a spokeswoman for Montreal-based Bombardier, declined to discuss talks with potential customers.
JetBlue operates 60 Embraer E190s with 100 all-coach seats and has about 150 larger, single-aisle Airbus planes, most of them the top-selling A320 model. In 2013, the airline pushed back an order for 24 additional Embraers to as late as 2022 amid a focus on larger, more fuel-efficient planes.
While JetBlue has expressed openness to the idea of moving just to Airbus planes from the A320 family, it also has said the smaller E190 is best suited for short-haul, high-frequency routes it flies out of Boston.
The Bombardier jets also could serve that role, but it’s unclear whether JetBlue would want to work through any early issues with the planes after being the initial airline to fly the E190 a decade ago, said Robert Mann, an aviation consultant based in Port Washington, New York.
“With the CSeries you potentially benefit from some very attractive new technology and economics,” Mann said. “But you also absorb the slings and arrows of being one of the first big operators. You work out all the kinks.”
United Airlines plans to order a fleet of 100-seat jetliners from either Bombardier Inc. or Embraer SA if it can agree on terms for a two-year contract extension with pilots in expedited bargaining.
Reaching a deal would assure labour peace with a crucial union for new Chief Executive Officer Oscar Munoz and bring back some flying now done by regional partners with cramped, less- efficient 50-seat planes. For Bombardier or Embraer, a sale to United would be a significant victory as they try to place their biggest narrow-body models at the largest U.S. carriers.
“This time of senior leadership change is a unique opportunity for us,” United Senior Vice President Douglas McKeen wrote in an Oct. 2 letter to union chief Jay Heppner, in a reference to Munoz’s hiring last month after the ouster of predecessor Jeff Smisek. McKeen proposed capping the talks at 45 days.
An airline spokeswoman, Megan McCarthy, confirmed the overture but declined to discuss the possible negotiating terms at the unit of United Continental Holdings Inc. Dave Kelly, a spokesman for United’s chapter of the Air Line Pilots Association, said: “We cannot discuss offers or proposals.”
United, buoyed by an upbeat investor update on third- quarter profit, rose 7.1 per cent to US$55.97 at 10:26 a.m. in New York. Bombardier shares rose about 5 per cent to $1.64 at mid-day on Friday. American depositary receipts for Brazil’s Embraer also advanced.
Buying new 100-seat planes for mainline flying would be a lure for pilots, because it would generate jobs and appeal to their interest in cutting-edge aircraft — an affinity jokingly referred to in the industry as “shiny jet syndrome.”
Airbus (AIR.PA) on Tuesday called off talks with Bombardier (BBDb.TO) over propping up the troubled CSeries jet, leaving the Canadian plane maker facing dwindling options to keep alive its dream of competing in the aerospace big league.
The latest blow to Bombardier, which has been trying to shore up its shrinking cash reserves for months, came after Reuters reported exclusively that Bombardier had made an offer to Airbus.
Both companies acknowledged that talks had taken place. A person familiar with the situation said Airbus had ended the talks shortly after they became public.
Under the proposed tie-up, Airbus would have helped Bombardier complete development of the troubled aircraft in exchange for a controlling stake in the program, effectively ending Bombardier’s independent efforts to break into the lower end of the global airplane market dominated by Airbus and Boeing (BA.N).
Bombardier is likely to take a strategic pause and regroup after the sudden end to what some executives had seen as a promising possibility, according to one source.
Among the options were reviving contacts with Chinese investors, and potentially Boeing (BA.N), as well as a renewed drive to sell stakes in the company’s rail and business jet units, the source said.
Boeing enjoys closer relations with Bombardier’s arch-rival Embraer (EMBR3.SA) of Brazil, and is seen as less likely to be interested in any tie-up with Bombardier.
Bombardier shares jumped 13 percent on the Toronto Stock Exchange immediately after Reuters reported the approach, ending the day up 15 percent at C$1.77. The shares are still worth less than a quarter of their value in July 2008, when Bombardier officially launched the CSeries jet.
After the report, Airbus confirmed that it had been exploring business opportunities with Bombardier but that such discussions were no longer being pursued.
Bombardier then confirmed it had held talks with Airbus about “certain business opportunities,” but
those discussions were no longer under way. It said it would continue to “explore initiatives, such as a potential participation in industry consolidation” but gave no further details.
The Montreal-based company, which has so far received a total of 243 firm orders for the jet, was unable to win a single order at the Paris airshow in June and is still short of its target of 300 firm orders by the time the aircraft enters service, set for 2016.
Even for an industry prone to long delays and cost overruns, the development of the CSeries has been rocky.
The project has battered Bombardier’s balance sheet. As of June 30, Bombardier had $9 billion in long-term debt and $3.1 billion in cash on hand, after burning through some $808 million in free cash flow in the quarter.
Desjardins analyst Benoit Poirier said investors would question why Bombardier would sell a majority stake in the CSeries just months before first delivery, given that much of the investments had been made.
“The willingness to sell a majority stake to Airbus with a minimal amount of cash could reflect management’s increased concern for the company’s financial position,” he wrote in a note.
The proposal came as the CSeries faces the most vulnerable phase of its development: after huge one-off costs but before revenues from deliveries, and without the cushion of airline deposits that would come with a fatter order book.
The 110-130-seat CSeries jet competes against the smallest models of Airbus and Boeing – part of the A320 and 737 families, respectively – using a lightweight design and new engines from Pratt & Whitney, part of United Technologies Corp. (UTX.N).
Airbus and Boeing have booked a combined 7,000 orders for their latest versions of those medium-haul jets.
Although Bombardier and Airbus have clashed in the jet market, sources said a deal could have had merits for both sides.
Airbus would effectively have been buying a fully developed plane, which its manufacturer says is exceeding performance targets, at a discount to its development cost. And Bombardier would have gained the support it needs to complete its biggest ever plane, and benefited from the powerful Airbus sales machine led by John Leahy, who recently conceded that Bombardier had a “nice little plane”.
Both sides could have benefited from some cost savings in combined supply chain management and procurement.
Any deal would have also carried defensive appeal to Airbus by keeping the CSeries away from China, a long-term competitor with deep pockets.
One source told Reuters that Bombardier had also approached an unspecified Chinese buyer about acquiring a stake in the CSeries, but those discussions ended three to four weeks ago.
Bombardier is also exploring the sale of stakes in other units or a possible cash injection by Quebec’s public pension fund manager, sources said last week.
It is also boosting efforts to generate orders for the CSeries, after refusing under a previous management to offer steep enough discounts, financiers said in Europe on Tuesday.