Bombardier faces turbulence and potential nine-month CSeries delay, says analyst

MONTREAL - An industry analyst is predicting turbulence ahead for the aerospace division of Bombardier Inc. (TSX:BBD.B) amid news that the transportation giant has lost another contract to European rival ATR.

David Tyerman of Canaccord Genuity has reduced his forecasts for the company, saying Wednesday that he expects a 33 per cent cut in regional aircraft delivery and a minimal increase in business jet deliveries in 2012.

Meanwhile, Tyerman also sees a potential nine-month delay in the launch of Bombardier's new CSeries.

Bombardier has said challenges in developing the CSeries is eating up the cushion it built to deliver the first plane by the end of 2013.

In a report, Tyerman said he now assumes the 110- to 149-seat plane won't be in service until early in 2014.

"We have now moved our entry into service assumption to the third quarter for the first CSeries model, with the second model now assumed to occur in the third quarter of 2015."

The analyst's forecast for Bombardier comes as it lost another contract to rival turboprop manufacturer ATR, which has sold seven aircraft with options on five others to Air New Zealand.

The South Pacific airline plans to expand its regional fleet by adding the ATR 720-600 planes to more than double its existing fleet of the European-made aircraft. The order had a list price of about US$270 million, although airlines usually receive substantial discounts.

Benoit Poirier of Desjardins Capital Markets said the order was disappointing news for Bombardier.

"Given the airline owns 23 Q300 turboprops, we had believed that Bombardier was favoured to win this order," he said in a report.

"However, Air New Zealand also operates 11 ATR aircraft and it appears that it has opted for the lower operating costs of ATR's aircraft over the faster speed of BBD's Q400."

ATR has announced about 150 turboprop orders so far this year compared with just a handful of Q400s orders for Bombardier.

Poirier said Bombardier (TSX:BBD.B) indicated at a business jet conference last week that its pipeline for regional aircraft was intact, but that orders had been delayed.

Indonesia's Garuda airlines is expected to order 18 CRJ planes or Embraer E-Jets by the end of November.

Tyerman said the order prospects for the Q400 seem decent, but that regional jet prospects are less clear and the airplanes could eventually be discontinued due to competition and higher fuel costs.

He said the company may still reduce production rates for regional jets further beyond what it has already announced.

"We also believe the fuel-efficient aspect of the Q400 gives it the potential for good short- and long-term sales performance."

The Grand Duchy of Luxembourg, on behalf of Luxair, placed a firm order for four Q400 NextGen planes valued at approximately US$126 million. The transaction also included options on an additional four Q400 NextGen aircraft.

Bombardier has announced production rate decreases for both its Q400 and regional jets because of a slowdown in orders.Bombardier has recorded firm orders for 412 Q400 aircraft, with 368 delivered as of July 31.

Air New Zealand and its subsidiary Air Nelson operates 23 of Bombardier's Q300 aircraft.

"(They) continue to be one of Bombardier's key Q-series aircraft operators; we look forward to continuing to do business with both these airlines," said Bombardier spokesman John Arnone.

On the Toronto Stock Exchange, Bombardier shares closed down nine cents or 2.27 per cent at C$3.88 in Wednesday trading.