Bombardier CEO says CSeries will be delivered next year despite engine incident

MONTREAL - Bombardier's CEO Pierre Beaudoin says he continues to believe the new CSeries passenger will be ready for service as planned next year despite an engine incident that has grounded its flight test fleet.

"I can understand that people would ask questions when there is an event like this...but we feel confident that we'll find the problem rapidly with Pratt & Whitney and that we'll be able to meet our schedule to entry into service in the second half of 2015," Beaudoin told reporters Monday.

He said the CSeries itself was damaged during an incident last Thursday, but should be able to return to testing once an investigation determines the cause of the engine's malfunction. However, he wouldn't say if it could take days or weeks.

The flight test schedule can accommodate unforeseen events that can surface, he said

Bombardier has absolute confidence in the engine, the main driver for the large fuel-cost savings promise of the CSeries, Beaudoin added.

"Pratt & Whitney has done a lot of homework, a lot of investment in this product and I'd like to remind you this engine has been certified, so that's an engine that's been through flight testing and has been certified by the authorities. So we have a lot of confidence in the engine," Beaudoin said.

Some analysts expect Bombardier's shares will remain under pressure while the airplane manufacturer determines the cause of the engine problem.

The shares closed down five cents or 1.36 per cent to $3.64 in Monday trading on the Toronto Stock Exchange.

Analyst Walter Spracklin of RBC Capital Markets downgraded the Montreal company and cut his target price 20 per cent to $4 on the elevated risk relating to the engines, which had been considered the "bright spot" of the CSeries.

In a report, he said a 50 per cent discount to its aerospace peers is once again appropriate.

"The latest program setback aggravates the concerns we had with the slow flight test program to date and calls into question development progress," Spracklin wrote. "Clearly, the engine failure will add to anticipated program timing and costs, while likely halting recent new order campaigns."

The US$4.4-billion CSeries program is expected to generate US$5 billion to US$8 billion a year in revenues at maturity and help improve overall profitability for Bombardier, Canada's largest aerospace company and one of the world's top producers of aircraft for commercial airlines and the business sector.

Kevin Chiang of CIBC World Markets said that's likely to be the case if the engine problem was restricted just to the first test aircraft, especially since the engine has completed thousands of hours of testing and that engine-related incidents are not uncommon during flight testing.

The "worst-case scenario" would be if the engine malfunction was deemed a structural issue.

He said anything but the best-case scenario will see investors flee Bombardier's stock as anxiety mounts over the CSeries' progress.

"The company's investors are not in the mood to give Bombardier the benefit of the doubt at this juncture of the story," Chiang wrote, adding that it was impossible to handicap which outcome is most likely.

Chris Murray of AltaCorp Capital said reports indicate that the problem occurred in the hot section of the turbine, rather than with the fan gearbox, which is the key to the efficiency of the engine.

"We anticipate further updates through the week, although we are feeling more comfortable that this is a manageable situation after only 48 hours," he said. "We expect the investigation will take some time, although our primary concern at this point remains how long a fix for the issues would take, as well as any regulatory or design changes required to mitigate the uncontained failure."

Joseph Nadol of J.P. Morgan said the engine malfunction could make it more difficult for Bombardier to secure orders at the Farnborough Air Show, which gets underway near London on July 14.

The analyst added concerns about the composition of the existing backlog of 203 firm orders and 447 commitments are raised by two customers. U.S.-based Republic Airways says it has not yet made a final decision on its CSeries order and British-based Odyssey Airlines is looking to crowdfunding where groups of investors join together to help finance its order for 10 CS100s to offer business class service between London City airport and New York.

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