MONTREAL — At the Paris Air Show this month, the largest and oldest of its kind, Bombardier’s Alain Bellemare is going all out to display his newest jet – with plans to send one streaking through the French sky above the assembled aviation executives.
It’s still going to be a tough sale.
The chief executive officer’s challenge is wooing carriers that rely on Boeing or Airbus Group, and increasingly prefer planes larger than Bombardier’s. The CSeries jet is more than two years late, orders trail forecasts and the few buyers are mostly tiny operators such as Iraqi Airways or AirBaltic.
At stake is whether Bellemare, 53, can revive Montreal-based Bombardier after CSeries cost overruns led to a 2014 loss, the first in almost a decade at the maker of aircraft and subway cars. While Bellemare has moved to stabilize Bombardier since becoming CEO in February, now he has to kindle interest in a model the company says will generate as much as $8 billion annually by 2020 – on a sales base of $21 billion last year.
“At the air show we’ll find out if Alain has the right crew to move the metal,” said Nicholas Heymann, a William Blair & Co. analyst whose skepticism of Bombardier’s customer list inspired a joking reference to a non-existent carrier. “Sign some tickets. Show you can do business with more than Tanganyika Airlines. Start bringing in the bacon” with an industry heavyweight such as American Airlines.
Bellemare has acknowledged that Job No. 1 is selling a model whose maximum capacity of 160 people is a leap up from the company’s 104-seat regional jets.
“The drag on Bombardier right now is the CSeries,” Bellemare told reporters on May 7 after the company’s annual meeting in Montreal. “Look at how much money we’re spending and investing. It’s significant. It has been a huge challenge.”
Just getting to Paris would be a CSeries milestone after missing the 2014 European show in Farnborough, England. The test fleet sat parked in Canada, grounded for three months by an engine fire less than a year into flight trials.
Bombardier has worked on the CSeries for about 10 years and expects development spending to be $5.4 billion, $1 billion more than it estimated a year earlier. The smaller version, carrying 108 to 125 people, lists for $63 million, while the 160-seater is $72 million. They are expected to enter service in 2016.
For all of that time and money, Bombardier has booked 243 firm orders. That’s fewer than half as many planes as Boeing sold in a six-month period ended in April, and short of Bombardier’s target of 300 by the time the CSeries enters service in 2016’s first half.
Only one of the 14 firm buyers, Deutsche Lufthansa AG, ranks among the world’s top 20 by passenger traffic. Lufthansa’s CSeries planes won’t even sport its livery. The airline will use them at its Swiss unit.
The delays have meant a loss of some sales. In March, Qatar Airways CEO Akbar Al Baker, who seven years ago predicted an eventual order of 20 aircraft, told Bloomberg News he had given up after too many delays. “You cannot wait for the CSeries indefinitely,” he said.
Many investors have reached a similar conclusion since Bombardier committed to build the plane in 2008. The widely traded Class B shares have tumbled 55 percent, while a benchmark gauge of Canadian industrial stocks zoomed 79 percent. The new CEO’s appointment on Feb. 12 hasn’t arrested the slide; Bombardier is down 4.5 percent since then.
Bellemare is scheduled to brief analysts and investors at a June 15 lunch meeting at the air show, analysts said. With new engines and materials, the jet will cut operating costs by 15 percent compared with competing aircraft, according to the company.
“They have so much riding on the CSeries,” said John Stephenson, CEO of Toronto money manager Stephenson & Co. “They clearly bobbled it.”
The Paris forum is an opportunity to make a good impression on the thousands of aviation executives, consultants and analysts converging on Le Bourget airport to schmooze in corporate chalets and catch the daily fly-bys. It’s a time for planemakers to seal deals – or start talks.
Bombardier predicts 7,100 new jets seating 100 to 149 passengers will be delivered in the 20-year period ending in 2033, representing combined revenue of $465 billion. The CSeries will capture about half that market, according to forecasts by Bombardier executives.
That projection is “very debatable,” said George Ferguson, an analyst at Bloomberg Intelligence. Bombardier faces not only entrenched competitors but may be trying to sell a plane in a market segment that is dwindling, he said.
Carriers such as Southwest Airlines Co. that rely on small narrow-body jets are “upsizing” – shifting to planes that seat more than 149 people rather than replacing their existing models, according to Ferguson.
“Airlines are looking to improve economies of scale by increasing both aircraft size and the number of seats on an airplane,” Ferguson said.
Bellemare, an engineer who also holds an MBA, came to Bombardier after 18 years at United Technologies Corp. His responsibilities there included some of the biggest programs in company history, such as the integrated aerospace systems for Boeing’s 787 Dreamliner. He also led its largest-ever acquisition, the $16.5 billion purchase of Goodrich Corp.
In his first three months running Bombardier, Bellemare has brought in new executives, ordered a strategic review of the company’s divisions and raised more than $3 billion in debt and equity. At its business-jet unit, Bombardier announced plans to cut 2,750 jobs and suspend work on the new Learjet 85.
“What Mr. Bellemare is doing is a textbook turnaround,” said Louis Hebert, a professor of management at the HEC Montreal business school. “He made a handful of big decisions right off the bat to give himself some oxygen. His biggest challenge now is to sell the plane.”