Published in August 2016 issue
Until recently, Canada’s Bombardier could describe the sales outlook of its newest aircraft, the CSeries, as nebulous at best. Despite being one of the newest narrow-body prototypes to hit the marketplace, with SWISS International Airlines as its launch customer in July 2016, its order logbook was far from impressive. However, Delta’s purchase of 75 CSeries jetliners in April 2016 has enabled Bombardier to turn a huge corner by successfully wooing one of the world’s largest carriers. Airbus and Boeing, keep an eye
By Rohan Anand
For global airplane manufacturers, it is easy to garner attention when marketing next-generation aircraft that promise to deliver cutting-edge technology, cost efficiencies, security compliance, and heightened competitive advantages.
But that’s only half the battle: it is sales traction that validates whether a manufacturer actually walks the walk instead of just talking the talk.
For behemoth aircraft-makers like Boeing and Airbus, talking the talk comes easy thanks to their sheer size, scale, and selling power. For smaller competitors like Bombardier or Brazil’s Embraer, the runway is longer—pun intended— given their smaller aircraft product line and the choice of features among competing models. To a mega-carrier based in the Middle East, for instance, the Airbus A380 has a much louder bark than the Embraer E-175.
When Montreal’s Bombardier announced its plans to launch the C Series aircraft in July 2004, from a fleet planning perspective, the global airline industry was in an entirely different era. Bombardier was known for success in regional and business jet planes, having sold thousands of planes in the sub-100 seat category. Among its most popular families were the de Havilland Canada Dash 8, Canadair Regional Jet (CRJ), and Q400 turboprop.
Bombardier’s primary fleet types—and their respective sub-generation series— were in high demand because they empowered airlines to serve small and medium sized markets that would have otherwise proved unviable on traditional, 130+ seat narrow-body airframes. These planes were deployed on commuter routes, often within the 200-mile to 1,500- mile range, and categorized as feeder spoke-to-hub routes. Or they may have been placed on strategically important routes that usually carried fewer than 100 seats per flight, for business travelers who preferred schedule frequency to large aircraft gauge.
But the outlook wasn’t entirely rosy for Bombardier back then. In the mid-2000s, industry analysts forecast that, with fuel prices rising above $50 per barrel, the surging demand for regional aircraft—essentially the heart of Bombardier’s business—would hit its peak by the late 2000s. Given the high operating costs of its aircraft, Bombardier began designing a newer, greener jet that would not only seat more passengers than its previous models, but use composite materials and new fuel-efficient engines.
Over the long span of aircraft planning, design assembly, and delivery, manufacturers arguably face far greater challenges— with significantly less maneuvering power and cost control— than airlines do when cyclical changes shock the air transport industry. It is an exceptionally arduous task to balance the commercial needs of airline clients against unpredictable whims that can cause a multi-billion-dollar project to go from boom to bust.
This was the risk Bombardier faced in the mid-2000s, when it promoted its plans to ‘go bigger’ with the C Series. Its business case rested on several key points. First, although plenty of airlines still operated twin-engine, single aisle aircraft in the 100- to 150-seat category (such as the Boeing 717, McDonnell Douglas MD-80 and McDonnell Douglas MD-90), none of these planes would be around in 15 to 20 years, and their creators were not coming up with any replacements.
Second, both Boeing and Airbus had been vocal about the 100-seat aircraft market being a lower priority area for their future business. Airbus’ A318 series and Boeing’s 737-600, both subcategories of the A320 and 737 families, respectively, had had lackluster success in the marketplace. Bombardier deduced that the C Series, which could be subdivided into the CS100 (C110) and CS300 (C130) would each house 100- 125 and 120-145 seats, respectively. The layout would promote a two-by-three seat configuration, which was popular with customers on the Boeing and McDonnell Douglas single-aisle aircraft.
Thus, Bombardier calculated the risk, identified a business need, and saw the 100-seat aircraft market as a gap that it could fill. Building on the success of its older generation aircraft, it planned to deliver an airframe that would fly traditional short and medium range routes, using a larger gauge than its Canadair jets, but with much more competitive cost structures. It also had an impetus to outmaneuver Embraer in catering to this market, since both manufacturers have significant overlap in terms of their market propositions as regional providers.
Even though Airbus and Boeing had brushed aside the need to serve the sub- 150 passenger fleet category, the C Series had an indirect impact on both of these mega-producers. Recognizing the supplier power that the C Series could have, Bombardier’s announcement was actually a catalyst for both Airbus and Boeing to modernize their existing narrow-body fleets. Thus, Airbus announced its A320neo (New Engine Option) project in late 2010, and Boeing unveiled its 737 MAX project in 2011. Meanwhile, Bombardier was placing its eggs in a basket that neither Airbus nor Boeing were planning to exploit.
But Bombardier’s timing for the C Series program could not have been worse. The global financial crisis of 2008 set off a slew of challenges. Bombardier still had existing orders to fulfill for its aircraft already in service (the CRJ and Q-400). By the end of 2013, the CRJ had been notoriously backlogged at just around the time at which certification testing for the C Series was intended to commence.
August 2016Add to cart | View Details
It somewhat helped that both Airbus and Boeing were fighting their own fires, though these did not overlap much with the aircraft market that Bombardier was trying to reach. The highly anticipated 2013 certification testing date for the C Series came and went. At the Singapore Air Show in February 2014, Bombardier announced it had 200 firm orders for its CS100, but that the plane’s entry into service would be delayed six to nine months due to supplier issues, design updates, and the lethargy of its flight testing program.
Another blow came in May 2014, with a 100-day grounding due to a failure of the Pratt & Whitney 1500G engines during stationary testing. The grounding ultimately stretched into 120 days and, with it, came further pains: during that time period, Bombardier announced 1,700 layoffs, a corporate restructuring, and the departure of CEO Guy Hachey. Its customers, moreover, placed orders in small quantities, some under anonymity, further clouding the outlook for the CS100.
Fortunately, the next 12 months held some bright spots: Bombardier completed 100% of its certification testing for the CS100 by November 2015, and announced that Lufthansa subsidiary SWISS International Airlines would be its launch customer in mid- 2016.
Still, the struggles and delays of the Bombardier program had cost some lucrative customers. United Airlines had considered purchasing 40 of the C Series aircraft but, given the uncertainty of the C Series production timeline, ultimately switched to the Boeing 737-700. Also Boeing gave United a deep discount, with a price that Bombardier couldn’t match. Was this a premonition of what was to come?
Another blow came from one of Bombardier’s most visible customers: Porter Airlines, a small regional carrier headquartered at Toronto Billy Bishop airport (YTZ), adjacent to Toronto’s downtown, right on the waterfront. Porter, sometimes called ‘the airline you’ve never heard of ’, had placed a conditional order for the CS100. That would have enabled the carrier to expand beyond serving the Eastern Canadian provinces and Upper US, to Western Canada, the US Rockies, and Florida. But it was contingent upon the Canadian government lifting a ban on larger jets from Billy Bishop airport and approving construction plans to extend the runway at YTZ.
But the Canadian government denied the runway expansion in 2015; a huge setback for Porter, Bombardier, and for the C Series program. Bombardier could have used Porter as a case on how the C Series could transform entire business models with its commercial viability. The situation looked grim—not the atmosphere Bombardier had envisioned this close to launch date.
But fate had other plans for Bombardier. In April 2016, Delta signed a firm agreement for 75 CS100s, with options for 50 additional jets. The $5.6-billion deal effectively nullified any notions that the C Series was destined for failure. The order for Delta’s CS100s, which can seat up to 133 passengers, also has conversion rights for the CS300 series, seating up to 160 passengers. Practically overnight, the Atlanta-based carrier leapfrogged from being a shadow carrier that operated Boeing 717s and McDonnell Douglass MD-88s and MD- 90s to being the largest customer for the Bombardier Twin Jet.
After stagnating around 250 orders for the C Series in early April, Bombardier now has over 325 orders in its pipeline. Comparing A & B with C, or Airbus and Boeing with the C Series, essentially portrays a modern-day David and Goliath situation, but with one underdog facing two giants instead of one. Collectively, Airbus and Boeing sold nearly 9,000 frames in recent years. And that was a mix of narrow-body and wide-body aircraft, allowing each manufacturer to tout productivity levels when one sector was outperforming the other (such as the successful sales of the 737-MAX when the 787 was having its production issues).
Planning, design, development, testing, and deployment of a new aircraft model rarely materialize without flaws in execution. Similar to Airbus’ challenges with the A380, and Boeing’s with the 787, it seemed like a natural progression for Bombardier to encounter its share of snags. Moreover, perhaps the pursuit was futile: Airbus and Boeing had caught on to the fact that there wasn’t a need for an aircraft that carried between 100 and 150 passengers. If the value proposition was simply to help carriers like Porter Airlines expand beyond Eastern Canada purely for competitive reasons, then the selling prospects would be tough for global carriers.
Attracting Delta, however, has proved to be a major game-changer for the C Series program. Delta is known for adopting some atypical practices when it comes to fleet planning, but generally with high rewards in the end. For instance, it purchased used 717s from Southwest Airlines, divested from its acquisition of AirTran, and uses them on routes to congested airports such as Atlanta to Newark, or shuttle services such as Los Angeles to San Francisco.
Now, with the CS100 and CS300 underway, Bombardier has visions for creating a CS500 that could elevate its playing power to the levels of Boeing and Airbus, although that will take some time to achieve. Regardless, both customers and potential buyers are now seeing the horsepower. Once the first C Series bearing the SWISS livery takes flight in July, its production value will continue to rise.
For the C Series, the skies are finally clear for takeoff.