Another Delay at Bombardier

Shares of Canadian aerospace manufacturer Bombardier (TSX: BBD.B  ) have not had a good start to 2014. The stock took double-digit-percentage losses as the manufacturer announced another delay in the C Series project. I'll take a look at what this could mean for Bombardier during the next year.

Delayed again
As the latest jets from Embraer SA (NYSE: ERJ  ) eat into Bombardier's market share in the regional jet market, Bombardier is moving to larger aircraft with the C Series. It's an ambitious move, considering it will force Bombardier to take a new approach to regional jets as the C Series takes over development time and dollars.

Like the 787 from Boeing (NYSE: BA  ) and the A380 from Airbus (NASDAQOTH: EADSY  ) , the Bombardier C Series has seen its fair share of delays. Its first flight, originally scheduled for late 2012, was eventually completed in September of the following year.

The latest announcement from Bombardier brought another delay for the C Series. Bombardier announced that the C Series' entrance into service would be delayed to the second half of 2015. Previous targets from the manufacturer had hoped to have the plane in service by late 2014.

Disappointments and rising costs
The news drove Bombardier shares back closer to their 52-week lows as investors digested the fact that C Series revenue will see a major delay. Even though analysts generally expected Bombardier to delay the C Series service entry, the estimates were closer to the first quarter of 2015 rather than Bombardier's announcement of the second half of 2015.

Keeping an aircraft under development for another year is also an expensive proposition. The Montreal Gazette noted that the delay could wind up costing Bombardier an additional $2 billion. However, the analyst note cited by the paper estimates an additional cost of $1 billion per year. The $2 billion figure is derived from a two-year delay in service from Bombardier's original late-2013 target to a worst-case, end-of-2015 target. Considering part of this cost has already been spent, a realistic estimate is that this delay could mean another $1 billion in costs for Bombardier.

Capital raising?
With delays in C Series revenues and additional costs during the delay, some are questioning whether Bombardier will need to raise additional funds. Bombardier CEO Pierre Beaudoin discussed this question recently saying, "We feel we have the liquidity to complete our programs," and, "We don't need to issue debt or equity."

Although the company does seem confident in its position, if events beyond its control arise, the C Series delay does make Bombardier more likely to need to raise capital either through debt or equity. While I don't expect Bombardier to need additional funds during the next couple years, investors should consider this risk when making an investment decision.

Buying opportunity
As a long-term pick, I still like Bombardier, and the recent drop presents an interesting opportunity. The success at Boeing and Airbus has driven shares of these two companies much higher, as investors see growth potential in aerospace manufacturing.

Meanwhile, Bombardier shares have been weighed down by negative news surrounding the C Series, causing shares to trade at a lower valuation on a forward price-to-earnings basis. With emerging markets fueling new aircraft demand, there is significant growth potential for this industry, and Bombardier stands to benefit both through the C Series and its regional jet offerings.

The bottom line
Bombardier is a significantly smaller aerospace manufacturer than Boeing or Airbus, but trades at a lower valuation, as well. For investors willing to accept greater risks due to Bombardier's heavy investment in the C Series, the company could be one of the best plays in aerospace manufacturing.

The latest announcement does increase risk, but it also provides a lower entry point. Investors bullish on the C Series' long-term success should give Bombardier a further look.

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