Bombardier released its fourth-quarter results today, and analysts were disappointed that earnings didn’t meet expectations. It’s been a roller-coaster year for Bombardier: its flagship-in-waiting, the CSeries, completed an important test flight and observers agree it’s got a lot of promise—if only it can get off the ground. Repeated delays in the CSeries testing schedule and delivery date are generally souring the mood. (Bombardier’s rail segment, meanwhile, has enjoyed a number of wins recently, including the imminent completion of the world’s largest monorail in Brazil, and a US$4.1 billion contract for commuter rail in Australia.
Still, the CSeries delay is suffocating Bombardier. The Canadian Press reported this morning that “Analysts have raised concerns about whether the delay will cause a cash crunch for the Montreal-based company and force it to issue more shares or seek more funding.” The chart above starkly illustrates the problem: Product development costs, Bombardier says in its 2013 year-end report, “essentially relate to the development of the CSeries family of aircraft, the Learjet 85 aircraft, as well as the Global 7000 and Global 8000 aircraft programs,” and those costs, in red, are soaring.
And they are going to go up further. Bombardier says that the CSeries alone will cost another $750 million to cross the finish line:
Until EIS [entry-into-service] of the CS300 aircraft program, we anticipate our CSeries aerospace program tooling to increase by approximately $750 million in relation to development spending and approximately $300 million in relation to capitalized borrowing costs.
The problem is clear: Until the company actually gets the first CSeries out the door, it’s stuck spending more and earning less.