Future of Bombardier CSeries uncertain after talks with Airbus fail

Already years overdue and billions of dollars over Budget, Bombardier are faced with an uncertain future over its CSeries. For some time Bombardier had been wanting to break into the narrow-body 110 – 130 seat sector of the market that was being monopolized by Airbus, Boeing, Comac and Embraer. In July 2004 it announced plans to concentrate on the C110 and C130 models, having decided to abandon the previous plans for the BRJX wider body jet. At the time it was estimated that the CSeries aircraft would be operational by 2013. It is understood that at the time it had been estimated that there was a market valued at US$250bn over 20 years for the 110-130 seat aircraft and with its anticipated 20% saving on running costs compared to its competitors, Bombardier believed they could attract up to 50% of that market. More recently the CSeries has been dogged with problems. While in 2005 substantial funding towards the US$3.5bn project was obtained from both the Canadian and UK governments, the project was shelved in January 2006 for a year owing to a lack of advanced orders. No mention of any potential delays had been mentioned, even in March 2012 when an announcement was made that the first flight would take place in December that year, and deliver would commence in 2013. The first delay of six months was announced in November 2012 owing to supplier problems; this was then followed by delays with the system integration process, resulting in the maiden flight taking place in September 2013. January 2014 saw delays in obtaining flight certification push entry-into-service dates well into 2015, while an uncontained engine failure on May that year saw testing suspended and the manufacturer miss out on the extremely important Farnborough Airshow. A slashing of the workforce and resumption of testing in August 2014 led to a statement in March 2015 that Bombardier expected to obtain certification in this year with entry into service next year.
Continual delays saw a cancellation of orders, and the program run considerably over budget, to the point where having completed approximately 80% of the project, and certainly the most costly part with exceptional one-off costs completed, the company is now struggling financially. A lack of orders sees Bombardier without the financial cushion it currently requires, which is why it made an approach to Airbus to offer a controlling stake in the CSeries in order to see the project completed and aircraft finally delivered. The offer itself required very little financial input from Airbus, which raised some eyebrows as that clearly indicated that Bombardier’s problems extended beyond cashflow. As at June 30, Bombardier had US$9bn in long-term debt and US$3.1bn in cash on hand, after getting through US$808m in free cash flow in the quarter. It was hoped that with their involvement, Airbus would be able to increase orders for the aircraft through its own highly successful sales team. Bombardier’s current situation is such that it has 243 orders compared to approximately 7,000 between Airbus and Boeing for similar sized aircraft. In addition to this it was anticipated that a number of costs involved in bringing the CSeries into operation could be substantially reduced through combined supply chain management and procurement.
However despite comprehensive negotiations, today it was announced that Airbus would not consider investing in Bombardier. It was believed that part of their reason for investing in the company would be from a strategically defensive angle in blocking any access from China to a virtually ready aircraft, however it was felt they would only do so if the stake could be acquired at a rock-bottom price. Clearly while the Canadian Government has always been committed to supporting Bombardier, it is likely now that overseas investment may well be targeted, while the company also seeks investment in other arms of the business, including rail and business jet units.