MONTREAL — Bombardier’s (TSX:BBD.B) shares soared to their highest level in 17 months Thursday as the aircraft and train manufacturer received the first North American order for its new CSeries aircraft in a deal valued at more than US$3 billion.
The Montreal-based company says Republic Airways Holdings of Indiana has placed a firm order for 40 larger versions of the plane. An option for an additional 40 of the next-generation airliners raises the potential total value of the deal to US$6.34 billion.
“The fact that we got this order during maybe the most difficult market the aviation industry has ever seen is testimony to how good this product really is,” Gary Scott, president of Bombardier Commercial Aircraft, said in an interview.
He said it’s further validation that the CSeries is a “game-changing airplane.”
Shares in Bombardier closed at C$5.87, up 39 cents or 7.12 per cent in heavy trading of 18.6 million shares on the Toronto Stock Exchange.
Bombardier had previously received firm orders for a total of 50 of the new planes from Lufthansa airlines and Irish leasing company Lease Corporation International.
Delivery of the Republic order will begin in mid-2015, about two years after the aircraft is sent to its launch customers. Republic also signed a 15-year maintenance contract with Pratt & Whitney (NYSE:UTX) for the plane’s engines.
The CS300 version will be configured with 138 passenger seats, which industry observers suggest means the planes will likely be used by Frontier Airlines.
The CSeries is critical to Bombardier Aerospace, which has spent years designing the advanced-technology jet. The list price for its two versions of the aircraft range between US$52.4 million and $60.9 million. Some 1,200 people — 1,000 in Montreal and 200 in Belfast, Northern Ireland, work on the new aircraft that promises to burn 20 per cent less fuel.
As the global economy improves and airlines see their profits recover, Scott believes more will order the CSeries.
“We think we’re sort of in a stabilizing period right now in 2010,” he said. 2012 is probably the year if it follows the typical cycle when orders will come back in earnest.“
While not willing to forecast the timing of sales, Scott said he would be disappointed if there weren’t more this year.
However, North America is unlikely to produce more orders this year. Instead, the focus is likely to come from Europe and Asia, the world’s third-largest and fastest growing market.
Republic Airways CEO Bryan Bedford said no other aircraft can match the attributes of the CSeries.
“The CSeries aircraft’s leading-edge technologies bring unmatched economics, operational flexibility, reduced environmental impact and passenger comfort,” he said in a statement.
Republic operates under the banners of Chautauqua Airlines, Frontier Airlines, Lynx Aviation, Midwest Airlines, Republic Airlines and Shuttle America. It conducts about 1,600 flights a day to 118 cities in 44 states, Canada, Costa Rica and Mexico.
Analysts said the order is good news for Bombardier and increases investors’ confidence in the CSeries program.
“We expect a snowball effect, which should lead to additional orders and prompt the inclusion of the project in (analyst valuations of Bombardier),” Benoit Poirier of Desjardins Securities wrote in a report.
Scott declined to confirm reports that Bombardier offered price discounts of up to 25 per cent to secure the Republic order. Analysts believe significant financial incentives will be required to entice airlines to be among the first customers.
Joe Nadol of J.P. Morgan said the CSeries has been the most important driver to push Airbus and Boeing to consider putting new engines on its A320 and Boeing 737s.
Scott conceded that the possibility of new engines on its competitors’ planes has caused some potential customers to slow down their decisions to purchase the CSeries.
“It may have delayed some decisions because they want to examine all their options, but I don’t think it will change those decisions,” he said.
Bombardier still expects to secure half of the 6,000 aircraft that will be sold in that target market of 110 to 145 seats within 20 years. It is in the process of finalizing the design of the aircraft.
Dave Chartrand of the Quebec Machinists Union said the orders help to erase doubts that the CSeries will get off the ground.
“It confirms the fact that this plane is going to see the light of day. I think many people, even with two (previous) orders were worried and said that this project is not yet assured,” he said.
