The Canadian Press - ONLINE EDITION

CSeries delivery challenges gets Bombardier downgraded by Goldman Sachs

  • Print

MONTREAL - Goldman Sachs has reiterated its downgrade of Bombardier (TSX:BBD.B) and shaved its stock price forecast even further amid expectations of additional delays in the Quebec company's CSeries jetliner program and the decision by a Swedish buyer to abandon its position as launch operator.

"We believe another delay in the Bombardier CSeries entry-into-service is inevitable, increasingly likely before 2014 year-end, and could even occur whenever flight tests resume," New York analyst Noah Poponak wrote Tuesday in a report.

The CSeries commercial jet has been grounded for more than three months since an engine failure halted its flight test program.

Swedish company Braathens Aviation (Malmo) disclosed last week that it will no longer be the aircraft's first operator. In 2011, it placed an order for five CS100 planes and five CS300 models, for a total of $655 million, with options on more.

But the CSeries development program is two years behind schedule, with the flight test phase often proving the most challenging for any new aircraft.

The Goldman anticipates the plane will be more than six months behind Bombardier's plan to deliver the smaller CS100 version with 110 to 125 seats during the second half of 2015. It's an outlook shared by many other analysts.

He said the plane and its larger CS300 version with up to 160 seats plane will "negatively impact" Bombardier's (TSX:BBD.B) financial results and create "negative catalysts" for several years. He shaved 20 cents off his 12-month target price for Bombardier shares to C$3 and once again urged investors to sell the stock.

The plane requires 2,400 flight test hours for certification but has flown just 300 hours. Poponak said Bombardier will have to dramatically pick up the pace of flight tests to 160 hours per month to achieve its delivery schedule.

"We see that as very unlikely given the pace achieved before grounding, momentum (not just time) lost during grounding, and the high risk of new problems occurring other than this engine incident," he wrote in a report.

The analyst added that the size and quality of the CSeries orders suggest overall demand may not be strong with a significant risk of deferrals and cancellations.

Bombardier has received 203 firm orders and 513 overall commitments for the airplane. It hopes to have 300 firm orders by first delivery.

DBRS Ratings Service maintained its rating for Bombardier at BB (low). It said the company's credit metrics have been deteriorating and will remain constrained by high capital expenditures at the aerospace division and weak profitability in transportation for 12 to 14 months.

"Even though the company has adequate liquidity to fund its operations, ongoing cash burn in the last few years could put the company’s liquidity position at risk," it wrote last week, adding that a downgrade could happen with further CSeries delays.

But Canaccord Genuity analyst David Tyerman sees promise in Bombardier, maintaining a $5 target price. He foresees "significant" earnings growth in the coming years from new aircraft launches, margin improvements at aerospace and transportation from restructuring, higher demand for some aircraft and the lower Canadian dollar.

He cautions that Bombardier's improvement may unfold slowly but doesn't believe Malmo's decision will change prospects for the plane.

"So, our buy call is best for patient investors," he wrote, adding that the CSeries should be a positive catalyst in the coming year.

Tyerman said he expects other CSeries customers will either take Malmo's slots or the delivery schedule will start more slowly than originally planned.

On the Toronto Stock Exchange, Bombardier's shares were down one cent at C$3.65 in Tuesday afternoon trading. Over the past year, they have traded between $3.44 and $5.43.

Follow @RossMarowits on Twitter

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Zoo officials detail tiger death

View more like this

Photo Store Gallery

  • The sun peers through the fog to illuminate a tree covered in hoar frost near Headingley, Manitoba Thursday- Standup photo- February 02, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)
  • A mother goose has chosen a rather busy spot to nest her eggs- in the parking lot of St Vital Centre on a boulevard. Countless cars buzz by and people have begun to bring it food.-Goose Challenge Day 06 - May 08, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)

View More Gallery Photos

Poll

Do you think the Jets' three pre-season losses in a row are a sign of things to come?

View Results

View Related Story

Ads by Google