Taking a commercial aircraft from the drawing board to delivery is a monumental task for any aerospace manufacturer, and Bombardier (TSX:BBD.B) (OTC:BDRBF) is demonstrating the magnitude of this task with its C Series program.
No stranger to delays, the C Series is already well over a year behind schedule. But does one more recent setback deal a major blow to Bombardier, or can this plane and train manufacturer get back in the air?
An all new competitor
Bombardier is best known in the aerospace industry for the ubiquitous Canadair regional jets, or CRJs, which comprise much of the world's regional airline fleets. But while the CRJ program has been successful, Bombardier wants to break into a new market and go after the big dogs: Boeing (NYSE:BA) and Airbus Group NV (OTC:EADSY).
While newer aircraft such as the Boeing 787 Dreamliner and Airbus A350XWB are grabbing the public's eye today, the smaller narrowbody Boeing 737 and Airbus A320 family are what account for a disproportionate share of jet deliveries.
It's this market that Bombardier is looking to break into with its C Series. While the current Boeing 737 and Airbus A320 are updated versions of aircraft originally developed in the 1960s and 1980s, respectively, the C Series is an all new airframe put into development just 10 years ago.
To be successful here, Bombardier will need to convince customers, most of which are airlines, that the C Series is a worthwhile addition to their fleets. But challenges and delays have kept cropping up, leaving many to wonder how well received the C Series will be.
Delays and challenges
Last year, Bombardier said it expected the C Series to enter service in 2014, but the company pushed back the date to 2015 in a January 2014 update. Then in May, a Bombardier CS100 suffered an engine failure during a ground test, and test flights were suspended until the issue could be resolved.
But as Bombardier plans to restart test flights this month, it's met with another setback. In late August, Swedish carrier Braathens Aviation said it will no longer be the first operator of the CS100 aircraft.
The fact that Braathens Aviation will no longer serve as the first operator is a disappointment for Bombardier, but Braathens' decision is not without reason. A Reuters article quoted a Braathens spokesman as saying, "Per the original contract the first CS100 should have been delivered by now -- mid-2014." However, Braathens has not abandoned the C Series. The same spokesperson said: "We have a firm delivery contract with Bombardier. So we are fully committed."
Although Braathens' decision doesn't make for good publicity on a successful C Series program, it hasn't resulted in the loss of a customer.
At this point, the most important thing on Bombardier's radar is getting the C Series test flights going again. Once these tests restart, an event currently slated for this month, Bombardier can continue pushing the aircraft through tests and certification, and eventually to delivery.
Ultimately, Bombardier's No. 1 goal needs to be getting the C Series from the testing grounds to delivery as quickly and safely as possible. Aircraft delays are hardly unique in the aerospace manufacturing industry and have been on prominent display over the past few years, with the Boeing 787 Dreamliner and Airbus A380. One takeaway from all of this is that a delayed aircraft still can sell, but the revenue won't be there until deliveries begin.
And Bombardier could really use some additional revenue generation, especially as some analysts note the possibility that the manufacturer may have to raise additional capital to cover C Series costs if delays persist.
Bombardier has developed the first all-new aircraft in decades to compete with the Boeing 737 and Airbus A320 family. But the manufacturer has encountered plenty of issues along the way, causing testing and deliveries to be delayed.
Based on Bombardier's past record, and the fact that when the test flights begin again the plane will have been grounded for about four months, I wouldn't be surprised if there's another type of delay before the C Series is in operation.
However, with there being millions of moving parts in this situation, it's impossible to make definite calls at this point. If further delays are minor and the C Series can enter operation, Bombardier has a real chance of taking some market share from Boeing and Airbus. But if delays continue, expect the stock to underperform.