While Bombardier Inc.’s new CSeries aircraft appears to be garnering a high level of interest, a new survey of potential customers shows there is no urgency to place an order at this point with uncertainty around the program and the broader economic woes weighing on buyer intention.
Walter Spracklin, RBC Capital Markets analyst, conducted a survey of 26 airlines, which collectively operate about 35% of the existing 100–to-149 seat aircraft capacity in the market in which the CSeries competes. Three-quarters of those surveyed said they planned on placing an order in the segment within the next five years, and 60% said they would between five and 10 years.
“The majority of the airlines that participated in our survey generally had favourable views on the CSeries and indicated that they were intrigued by the project,” Mr. Spracklin said in a note to clients. “The key here however, is that despite the favourable sentiment surrounding the CSeries, timing is an issue as our survey found that respondents generally prefer to employ a “wait-and-see” approach.”
The ongoing uncertainty is certainly fueling this wait-and-see approach, he said. Delta Air Lines, for example, announced just this week it would be postpone an order for roughly 100 narrowbody aircraft for the next few years. The Cseries was considered a serious contender for that order, and Bombardier’s shares fell accordingly.
“We consider Delta’s deferral to be potentially indicative of a broader industry trend,” Mr. Spracklin said.
At the same time, the CSeries also seems to be being bested by its rivals in the near term.
Only about 7% of those surveyed said they would ‘likely’ place a CSeries order within the next five years, compared to 20% who said they would likely purchase Boeing’s re-engined 737 and 18% who said they would likely purchase the Airbus A320neo over the same period. However, looking out further, about 22% said they would likely purchase the CSeries five to 10 years out.
“While this is encouraging, a large number of participants stated that they were simply unsure of the probability that they would purchase the CSeries in the long run. They commented that until development progressed further and answered several key questions, they could not predict their future interest,” he said.
As a result, Mr. Spracklin said he thought it might prove difficult for Bombardier to reach its goal of 300 orders by the CSeries’ entry into service in late 2013. With only 133 firm orders on the books to date, and a miss on that target might negatively impact the stock, he added.
At the same time, those surveyed said they had concerns about being among the first airlines to operate the unproven plane, and about fitting a new aircraft type into their fleets and the costs that would entail.
On a positive note, however, for investors Mr. Spracklin said Bombardier’s shares appear to be reflecting a high degree of negativity, and most of the downside risk is currently reflected in its share price. But until the broader economy steadies, new regional jet orders arrive, or some positive news comes from the Cseries program itself, he said he was maintaining his “sector perform” rating on the stock
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