Bombardier’s embattled C-Series airliner has finally found the major North American airline customer it has been searching for.
Air Canada said Wednesday that it has signed a letter of intent to order 45 CS-300 airliners with an option for another 30 jets.
The 45-plane order is worth as much as $3.7 billion, with an option that could add as much as $2.5 billion onto its size.
The deal checks several boxes for investors who’ve been worried about the C-Series drain on Bombardier’s resources. Until Air Canada signed on, Bombardier had failed to secure a single order from any of North America’s leading airlines. Last month, the C-Series lost out to Boeing on a 40-plane order from United Airlines.
So, the Canadian company’s shares skyrocketed more than 21% on the news. They added to those gains Thursday.
But the deal does fall short in one major way: Air Canada’s endorsement isn’t the kind of validation that Bombardier desperately needs for the aircraft.
That will only come when a buyer that isn’t so closely tied to the Canadian government steps up to the plate.
Air Canada’s CEO told reporters Wednesday that the deal was “100 per cent a commercial deal” and Reuters reports that the Canadian government said it put no pressure on the carrier to strike the deal.
But it’s notable that the government of Quebec — where Air Canada is based and which just bailed out Bombardier — also said it would drop a lawsuit against the airline after the purchase was announced. And, Canada said it would lift some restrictions on Air Canada to make it more competitive, Reuters reported.
“The relationship between Air Canada and the C-Series is a double edged sword for Bombardier,”Airways News senior business analyst Vinay Bhaskara told Business Insider. “On the one hand, when Air Canada didn’t buy the C-Series, people wondered what was wrong with the Canadian plane that even Canada’s national airline won’t touch it.”
Now that Air Canada has ordered the aircraft, the wave of positivity stemming from the sale has been stifled somewhat by “the perception of a cosy relationship between Air Canada and the Canadian National interest.”
Bombardier does have orders from several international customers, but landing a deal with one of North America’s major national carriers is critical for new entrant to the mainline airliner business.
“A large order from a major carrier is important for two reasons,” Bhaskara said. “First, it serves to validate the aircraft in the eyes of the market.”
“Second, it allays the fear amongst potential customers that there may not be sufficient available after purchase support in terms of parts and service.”
Bhaskara likens this concern to those of owners of exotic sports cars. It’s not as easy to find the parts or qualified mechanics as it is for, say, a Toyota Camry. This is especially worrisome for the customer if sales are so low that the program runs the risk of being canceled.
Certainly the Air Canada order is a starting point. Another order from a tier-one airline would go far in removing any doubt that is left with respect to the C-Series’ viability as a mainline airliner.
And there is hope for that.
Delta CEO Richard Anderson mentioned during the company’s investors call that the C-Series could be a great plane for the airline at the right price. Furthermore, United may still be considering an order for the C-Series even though it just put down a deposit on a fleet of new 737s, Bhaskara said.
Both of these airlines are the type of the customer that would lend the C-Series the type of credibility and stability the program needs to lock down a place in the big leagues of a commercial airliner manufacturing.
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