Can Bombardier Survive in the Commercial Aviation Business?

Canadian aircraft manufacturer Bombardier (BDRAF -1.58%) caters to the commercial aviation segment with its CRJ family regional jets and Q Series turboprops. It's also working on its CSeries planes in the single-aisle category, though back-to-back delays are proving worrisome. Despite a comprehensive portfolio, the company is under mounting pressure from rivals like Embraer (ERJ 0.93%). For fiscal 2014, Bombardier expects to deliver 80 commercial jets, while Embraer foresees 92-97 commercial deliveries. Can Bombardier tackle these challenges and start a new era of growth? 

The current situation
Under the CRJ family, Bombardier has three jets, namely CRJ700 NextGen, CRJ900 NextGen, and CRJ1000 NextGen, that cater to the 60-99 seat segment, and under the Q-Series it offers the Q400 NextGen turboprops that carry up to 78 passengers. In 2013, the company delivered 238 jets, of which 55 were commercial planes, five more than in 2012. CRJ jets performed nicely with deliveries almost doubling, but Q400 deliveries dropped nearly 20%. Order books for both families were awfully weak, though orders for its upcoming CSeries jets doubled. Figures during the six-month period ending June 2014 look better with commercial deliveries rising 44% to 36 units.

Embraer is striking where it hurts
Bombardier believes that the regional market will remain challenging and expects global deliveries to be roughly 5,600 in the coming 20-year period, down from 5,800 predicted earlier. Despite being the prime mover in the regional jet category way back in 1989 with the CRJ series, Bombardier is ceding ground to the Brazilian plane maker, Embraer. Embraer has emerged as the leader in the 70 to 130 seat jet segment with E-Jets making up 60% of the fleet in service compared to Bombardier comprising 31%. 

After the first six months of 2014, Bombardier's CRJ backlog stood at 106 units, down from 111 units recorded at 2013 year-end. The backlog could fall further, as Bombardier couldn't clinch any orders for its CRJ series at the Farnborough air show in July.

CRJ1000 NextGen, source: Bombardier

Moreover, while Bombardier was busy building the single-aisle CSeries from scratch, Embraer was prompt enough to remodel its E-Jet family and introduce the E2 jets. The E2's upper end model E195-E2 is in direct competition with the CSeries. And it is telling on the order books. Embraer's E2 backlog since the 2013 launch boasts 200-plus firm orders, even excluding the orders won at the Farnborough air show, while Bombardier's CSeries has secured 203 firm orders since launch in 2008. And if we include the commitments that are yet to be firmed up, the CSeries order tally stands at 298 units through mid-July.

However, Bombardier has neared its target of generating a pipeline of 300 orders for the CSeries and is sticking to its 2015 service entry timeline. German airline Deutsche Lufthansa, which contributed significantly to the revival of the CSeries program, is still maintaining its order for 30 confirmed and 30 optional units. The CSeries could play a crucial part in turning around Bombardier's fortunes in the commercial aviation segment.

Q series holds potential
For years, demand for turboprops for covering shorter distances has remained higher than the regional jets. Additional environmental taxes and pressure to keep cost-per-seat low are pushing the demand for turboprops. Bombardier expects the short-haul market to rise further on the back of high fuel prices, and has raised its expectation for global turboprop deliveries over the coming 20 years from 2,500 units to 2,832 units. Bombardier is facing tough competition from European aircraft manufacturer ATR, which has been dominating the regional turboprop market with cheaper offerings since 2009.

Bombardier's backlog for its popular Q400 turboprops is shrinking, but it has a game plan. Of late, manufacturers are noticing demand for large turboprops -- in the up to 90 seat category. Bombardier has responded by unveiling a high-capacity Q400 NextGen with a seating capacity of 86 passengers. Priced roughly $3 million higher than its original version, the 76-seater Q400 that came for $27 million, the company asserts that this "modern turboprop" can belong to both turboprops as well as the medium-haul market.

Q400 NextGen, source: Bombardier

Bombardier is already enjoying wide acceptance of the high-capacity NextGen jet as it has won firm as well as optional orders from Thailand-based, low-budget airline Nok Air, Seattle-based Horizon Air Industries, and Calgary-based WestJet Encore. Rival ATR is yet to introduce a high-capacity jet (current capacity of ATR 72 is 72 passengers).

Bombardier is also looking forward to broadening exposure in Russia with the development of a final assembly plant for Q400 NextGen jet. This would help Bombardier nurture growth in Europe. 

Bombardier's sweating it out in the commercial aviation segment, but it's hoping to change that with its CSeries nearing service entry. Though the program's delay is concerning, growing orders is a good sign. The new Q400 NextGen is another bright spot on the company's future horizon and can help Bombardier garner market share.