Aerospace analysts eager for June Cseries test flight

MONTREAL — Aerospace industry observers are eagerly watching for confirmation this week that Bombardier’s Cseries aircraft will make its maiden test flight next month. Amid expectations of a weak first-quarter, analysts see the plane’s progress as a potential catalyst to turn around the transportation giant’s lagging share price.

Kevin Chiang of CIBC World Markets says, “all eyes are turned towards the Cseries first flight” by the end of June and signals that it will avoid delays that gripped Boeing’s 787 aircraft.

“If Bombardier fails to meet this milestone, then questions about whether the Cseries will follow in the footsteps of the Dreamliner will only get louder,” he wrote in a report. “In other words, the success of first flight will be used as a barometer to gauge the ability for Bombardier to execute on its Cseries program.”

The first flight has been already delayed about six months from initial forecasts. Analysts describe it as the “first domino” needed to achieve Bombardier’s long-term targets of generating US$5 billion to US$8 billion of additional revenues in five years. Joseph Nadol of JP Morgan said the Cseries remains a key issue but he isn’t expecting any change from the June target date.

Turan Quettawala of Scotiabank also believes the CS100 will likely fly this summer, which will reduce the risk for the company and could lead to some orders. He said the first-quarter has been weak for orders for both the company’s aerospace and transportation divisions.

With healthy railway and large business jet backlogs, Bombardier can expect a stream of revenue for several years. But Quettawala said he expects the quarterly report to show that the aerospace division has burned through $740 million of cash as it continues to spend heavily on development projects such as the Cseries, Learjet 85, Global 7000/8000 and Learjet 70/75.

“The free cash flow situation is also likely to be exacerbated by low-order flow in the quarter,” he wrote.

Bombardier is expected to report Thursday that its earned US$134.3 million, or nine cents per share in adjusted profits in the first quarter, according to analysts polled by Thomson Reuters. That’s down nearly 25 per cent from US$179 million or 10 cents per share in the prior year. Revenues are expected to increase 19 per cent to $4.17 billion.

Bombardier’s regional aircraft program has been helped by jet orders from Delta and by WestJet’s order for Q400s. But the company lost a United Airlines regional jet order for 30 aircraft to Brazilian rival Embraer. One-third way through the U.S. Airlines order cycle, Embraer has won 77 of the 117 firm orders awarded by Delta, United and Republic. Nadol said competition with Bombardier should be “intense” for additional orders particularly because of Embraer’s success.

On the transportation side, Bombardier is set to secure a US$2-billion order from Deutsche Bahn for up to 450 electric locomotives over a decade. The pending order, which still needs internal approvals in Germany, comes despite a dispute between the two sides over problems with commuter trains used in Berlin.

“As such, this order highlights both the demand for Bombardier Transportation’s advanced technology, as well as the massive and growing infrastructure need in the eurozone,” says Walter Spracklin of RBC Capital Markets. He expects a resumption of Chinese contracts will boost transportation margins in the first quarter to 6.5 per cent compared with 4.5 per cent for aerospace. Spracklin said Bombardier shored up its liquidity through a US$2-billion bond offering in the quarter.

© 2013 The Canadian Press