Lear 85 suspended

[pelmet]

http://www.ainonline.com/aviation-news/ ... 85-program

Bombardier Halts Learjet 85 Program

Struggling to balance a hefty development schedule that was quickly burning cash, Bombardier is “pausing” its Learjet 85 program in a move that will result in a $1.4 billion pre-tax charge in its fourth-quarter 2014 results and the layoff of 1,000 workers this year. The decision to halt the Learjet 85 program was widely expected after Bombardier refocused its resources last year on seeing through the CSeries program and moving ahead with the Global 7000/8000 programs.

“The Lear 85 pause is not a major surprise,” said J.P.Morgan analyst Joseph Nadol. “We had expected Bombardier’s decision to shelve the Learjet 85 for now due to the program’s struggles and the more important development and production challenges Bombardier faces for the CSeries and Global 7000/8000.”

Analysts noted that the success of the CSeries, which has suffered costly, prolonged delays, is critical to the future of the company. The Global 7000/8000 program offers higher margins and has enjoyed stronger sales. The light jet market, meanwhile, is just now showing signs of improvement after the prolonged downturn, and with the exception of orders from the former Bombardier-owned Flexjet, sales of the Learjet 85 have been slower.

“Bombardier constantly monitors its product strategy and development priorities,” said Bombardier president and CEO Pierre Beaudoin. “Given the weakness of the market, we made the difficult decision to pause the Learjet 85 program at this time.” He added, “We see tremendous market potential [for the CSeries and Global 7000/8000]. Both programs are progressing well.”

Beaudoin discounted technical issues as a factor in the decision, saying it was purely market driven. He noted given the other models in the Learjet 85 niche, “the market doesn’t justify us continuing investment at this time.”

Bombardier said it is continuing to experience weakness in the light jet market and is scaling back its business jet sales forecast. At the same time, though, the company’s 2014 business aircraft deliveries exceeded its original target of 200. The company said it delivered 204 business jets in the year, up from 180 in 2013.

The company also has been encouraged by the sales of the Learjet 70 and 75, and said its order intake overall had climbed in 2014. The company had orders for close to 130 business aircraft in the year. “We’re doing OK on the Learjet 70 and 75,” Beaudoin said, but added, “It is not the level it was pre-2008.”

Analysts Weigh In

Business aviation analyst Rolland Vincent disputes Bombardier's assertion that the light jet market is experiencing “weakness.” Vincent, the creator of JetNet IQ and former marketing and communications director at Learjet, said he is forecasting “no decrease” in the light or midsize jet market. In fact, he is merely reallocating the market share for the Learjet 85 to competitors, namely the Embraer Legacy 450/500 and Cessna Citation Latitude. “This is good news for these two manufacturers,” he told AIN. “But what this move really comes down to is a CSeries cost-reduction program. It's not a light or midsize jet market issue.”

Vincent also contends that the “pause” is a “de facto cancellation” of the Learjet 85. He believes that Bombardier “might try to market the program to other companies or sell the Learjet 85 assets.”

Richard Aboulafia, vice president of analysis at the Teal Group, agreed, commenting that the Learjet 85 had become “another CSeries casualty. What a carnivorous program that's turned out to be. Embraer is the big winner here. The 500 is arriving at exactly the right time.”

Business aircraft market tracker Brian Foley added, “It’s refreshing to see Bombardier show some level of transparency, which should normally be a matter of full disclosure to shareholders. Now, about that CSeries being delivered later this year…”

The decision, however, sparked concerns among analysts that Bombardier is facing liquidity issues. Analysts closely questioned the manufacturer about its liquidity position during a January 15 call.

“Liquidity is now the key issue for the stock,” said Nadol, noting that the $2.4 billion cash at the end of the year was $600 million below estimates. “Management has noted in the past that it needs about $2 billion to run the business, and Bombardier typically burns cash during the first nine months of the year.” Further causing concern was a decision by Bombardier to lower its margin guidance for the Aerospace group to 4 percent for the year, instead of 5 percent.

The $1.4 billion impairment charge is primarily related to development costs for the composite Learjet 85. In addition, Bombardier is planning a $25 million severance provision in the first quarter of this year as it cuts its workforce in Querétaro, Mexico, and Wichita. The reductions will begin immediately, with Wichita accounting for 620 of the job losses.

But Bombardier stressed that each location remains a critical part of its activities, with Wichita housing Learjet 70 and 75 assembly, along with the Bombardier flight-test center and a service center. Querétaro, meanwhile, is providing structures for the Globals.

The decision comes less than a year after the Learjet 85 completed its first flight in April 2014. Bombardier would not reveal a certification schedule though, saying only that it was accruing hours and the program was progressing well. Bombardier had completed more than 70 test flights. The company had also nearly completed a second flight-test vehicle, and Beaudoin said it was almost ready to move into the flight-test program.

The company brought the Learjet 85 to the most recent NBAA Convention in Orlando, providing a public showing that the company was still backing the model at the time. But speculation continued over the program's ultimate fate.

Company executives maintain that its decision is just a pause and that the program will be ready to ramp back up should the market dictate. When the market picks up, Beaudoin said, “I think we have a fantastic airplane.” However, he would not estimate how long it would take to ramp the program back up, given the layoffs and writeoffs.

“If Bombardier recovers from the CSeries, the Learjet 85 could be relaunched, although it might come back as something less ambitious, which is just as well,” Aboulafia said. “It's far from clear that the market wants a composite jet.”

In the meantime, Bombardier is working with its Learjet 85 customer base. The company is not revealing total number of orders for the jet, but Flexjet had been the aircraft’s largest customer with firm orders for 60 valued at $1.2 billion.

Bombardier is hoping to shift those customers either to its 70/75 or up into the Challenger line. Otherwise, it will refund deposits. But Beaudoin said of the deposits, “It is not a significant amount.” This is particularly true because with fleet orders, the deposits are spaced out according to the lead times of the delivery schedule.

[Flybabe]

Wondering if there are any Bombardier people involved with the 85 program "in the know" cruising the forum that could PM me.

[wallypilot]

It's too bad, as it looked like it would be a great aircraft for the price. Technologically advanced in many ways, if the timing had been better, it might have been a market segment leader.

[Roar]

I never understood the reason behind Bombardier developing the Lear 85. It seems to me that Bombardier already has a successful super mid-size on the market in the Challenger 300, why they would choose to develop the Lear 85 and compete with themselves is strange.
The Lear 85 from what I can find, was to go 500-100nm less, 10kts slower and has less useful load. So unless it's Capital cost and DOC's are substantially less than the 300 why would anyone buy it?
They say it was to be between a mid-size and super mid-size but I have to question whether that market segment actually exist, it's more likely a marketing ploy.

[wallypilot]

I never understood the reason behind Bombardier developing the Lear 85. It seems to me that Bombardier already has a successful super mid-size on the market in the Challenger 300. So unless it's Capital cost and DOC's are substantially less than the 300 why would anyone buy it.

I agree...it is a bit confusing, however, the Acquisition cost would have been 5-6 mill less than chally 300' and DOC's lower as well. But I agree, still a bit of a strange decision to build such an airplane in the beginning.

[pelmet]

http://aviationweek.com/business-aviati ... slams-shut

Here is more background info.

[wallypilot]

If they had got to market before the Legacy 500, i think it would have done ok.

[Flybabe]

Still looking for a Bombardier person "in the know" with the (now failed) 85 program. I have a question.

[ScudRunner]

I never understood the reason behind Bombardier developing the Lear 85. It seems to me that Bombardier already has a successful super mid-size on the market in the Challenger 300, why they would choose to develop the Lear 85 and compete with themselves is strange.
The Lear 85 from what I can find, was to go 500-100nm less, 10kts slower and has less useful load. So unless it's Capital cost and DOC's are substantially less than the 300 why would anyone buy it?
They say it was to be between a mid-size and super mid-size but I have to question whether that market segment actually exist, it's more likely a marketing ploy.

The project was launched at the Paris Air Show on July 13, 1999, at which time it was called the Bombardier Continental. It was a "clean sheet" design, assembled in Bombardier's Learjet plant at Wichita Mid-Continent airport, Kansas.[3] The jet was renamed in September 2002 after much debate about which category (Learjet, Challenger, or Global) the new aircraft fit into.[4] It entered commercial service in January 2004.[5][6]

That quote is from wikipedia but I recall reading back in the day that the Challenger 300 was originally going to be in the Learjet stable of aircraft not the BBD Challenger line.

I really think this is more of a systemic problem with BBD, they sit back on their success and wait until competitors are chomping at their market share to act. We have seen this already with the C-Series which should have gone full bore ahead back when it was the BRJX program. That move allowed Embraer to enter the market with the E-170/190 and now they are on their second generation E2's.

Instead BBD chose to further stretch and refine the CRJ into the CRJ-1000, sure it covers the market but what airlines where asking for was a modern engine under wing configuration with much more pax comfort than the CRJ.

I am hopeful that with the recent shake up of the executives at BBD some real leaders with vision and not the francophone good old boys club will enter the scene and clean house. This company could be so much more but failure after failure is starting to add up and if it isn't put back on track a giant of corporate Canada will be sold off piece by piece and this once mighty company will be studied at business schools for all the wrong reasons.

[pelmet]

Opinion: How Bombardier Can Bounce Back

Why the aircraft builder needs a radical overhaul

Where there is smoke, there is usually fire. Bombardier’s shelving of the Learjet 85 midsize business jet last month is symptomatic of two much larger issues that new CEO Alain Bellemare must confront in the near future: one is financial, the other is strategic.

The financial issue is liquidity. Bombardier has roughly $2.5 billion in cash and cash equivalents on hand, and it has an estimated $100 million-per-month burn rate to support development of the oft-delayed CSeries narrowbody airliner, the high-end Global 7000/8000 business jets and until recently the Learjet 85. The CSeries looks to be at least a year away from entry into service (EIS), and Bombardier must cover a $750 million bond payment due next year. Given the $1.5-2 billion in working capital that it needs to run the business and meet debt covenants, it looks like Bombardier risks running out of cash in 2016.

Now Bombardier’s strategic issue: In contrast to its Commercial Aircraft business, Business Aircraft has a great product portfolio—particularly in large cabin aircraft—but it is being starved of development funds as Bombardier circles the wagons around the CSeries. Case-in-point is Bombardier’s late response to Gulfstream’s G650, which entered service at the end of 2012.

A fast response was needed, but lacking development funds, Bombardier’s competing Global 7000/8000 will not enter service until 2016-17. This has left Gulfstream with a generous four or five years alone in business aviation’s most profitable segment. Not surprisingly, Bombardier ceded its No. 1 market position to Gulfstream last year. And last month, Bombardier halted the Learjet 85, citing “weak market demand” at a time when interest in smaller business jets is poised for growth. Business Aircraft’s problem—lack of development funds—is growing worse.

Its credibility is also suffering, which may have contributed to poor 0.6 book-to-bill ratio in 2014 when rival Gulfstream experienced robust unit sales.

What should Bombardier do? The company appears to have two major options short of a government bailout: issue high-yield debt or fundamentally restructure.

Issuing debt would rattle financial markets, but would allow Bombardier to bring the CSeries to market and possibly fund the $1 billion-plus Global 7000/8000 development program. That would buy time but not address the financial implications of running a CSeries production line at suboptimal rates. My firm, ICF International, forecasts the CSeries to be a niche aircraft with 40-60 deliveries per year, when 100 or more is the likely breakeven threshold. Additionally, Boeing and Airbus are using marginal pricing to sell their “last off the line” 737s and A320s before they are reengined later in this decade.

Then there is the issue of scale. Last year, Bombardier delivered less than $2 billion worth of airliners; Boeing and Airbus combined for more than $100 billion. Bombardier portrays the CSeries EIS as the end of its challenges; in reality, it could be just the beginning. How in the long run can the company remain in the same league as these giants while simultaneously competing in business aircraft? This means Commercial Aircraft likely will bleed cash for the foreseeable future and continue to drag down other parts of the business.

This leaves fundamental restructuring as the best long-term option for the survival of Bombardier. I believe it could survive and thrive by pursuing a three-point restructuring.

First, sell the aerostructures business. Aerostructures is not a core competency and does not provide a competitive advantage in Bombardier’s core aircraft business. Shedding this business would sharpen management’s focus and provide much-needed capital.

Second and most controversial: Sell or pursue a joint venture for the money-losing Commercial Aircraft business. As discussed in my June 23, 2014, column, China’s Comac appears to be the best option. To be successful, Comac needs Western certification expertise, a global customer support function, and systems engineering and supply chain capabilities. Bombardier can provide all four. Bombardier needs capital and customers; Comac can supply both. I call this the “Combardier” scenario. Combardier could then market the CSeries in China and the Comac C919 to customers outside of China. On paper, the two are a hand-in-glove fit. The real world is far messier, and politics could block such a tie-up. If Combardier is not in the cards, then Bombardier must find another partner quickly.

The third element of restructuring is to double-down on the profitable, $6 billion-plus Business Aircraft unit. Freed of the distractions and financial drain of the CSeries, Bombardier could accelerate development of the Global 7000/8000 and restart the Learjet 85. With a broad product portfolio and strong brand, Bombardier would have a real shot at regaining its No. 1 position.

Fundamental restructuring is never easy, but Bombardier’s current course is potentially unsustainable. The new Bombardier would be a focused, highly profitable Canadian business aircraft leader. And Combardier might just have the scale and resources to break the Boeing-Airbus duopoly.

http://aviationweek.com/business-aviati ... ounce-back

[ScudRunner]

Combardier, nah go with BombComi I like the ring of that.

[pelmet]

Bombardier Pins Hopes On New CEO, New Financing

Ex-UTC executive takes the helm as Bombardier tries to reposition

In 2012, when the CSeries was planned to cost $3.4 billion to develop, Bombardier had $5.7 billion in debt and $670 million in earnings. Now the cost of developing its all-new narrowbody airliner has risen to $5.4 billion, and the company has $8.4 billion in debt and losses of $570 million in 2014. With analysts concerned it could run out of cash, the company announced a new financing plan and chief executive.

United Technologies Corp. aerospace executive Alain Bellemare has replaced Pierre Beaudoin as CEO, with an initial focus on improving program execution. Beaudoin has become executive chairman, replacing his father, Laurent Beaudoin, who has retired after 50 years. Pierre Beaudoin says his initial focus will be the financing plan, which aims to raise up to $600 million in equity and $1.5 billion in debt.

Bombardier’s problem is the CSeries, which will continue to consume development dollars into 2016. And even if deliveries begin in the second half of this year, as the company maintains, the aircraft will sell at a loss because of launch prices until production ramps up. Beaudoin now says entry into service of the initial 110-seat CS100 will be “more toward the end of the second half.”

The growth in CSeries development cost is revealed in Bombardier’s 2014 financial results. The increase of almost 24%, to $5.39 billion, is due in part to last year’s 100-day grounding of the CSeries after an engine failure during ground testing. But for the first time, the total also includes $325 million in vendor development costs that Bombardier must repay to suppliers from sales of the CSeries.

Program costs have been on the increase since the CSeries first flew in September 2013, when development costs were projected to be $3.4 billion, plus another $500 million in capitalized borrowing expenses. The objective then was to keep the total program cost below $4 billion, Bombardier Commercial Aircraft President Mike Arcamone said at the first flight.

By the end of 2013, $3.31 billion had been spent on CSeries, and an estimated $1.05 billion in development and borrowing costs lay ahead, for a total of $4.36 billion. A year later, the company has spent almost $3.99 billion and is estimating another $1.4 billion to come—$850 million for development, $225 million for borrowing and the $325 million to repay suppliers.

Against this background of rising development expenditure, Bombardier’s cash reserves have dwindled. The company ended 2013 with $4.84 billion in available short-term capital. By the end of 2014, this had declined to $3.85 billion, including $2.49 billion in cash, despite Bombardier raising $500 million in additional liquidity in April. And the Aerospace sector continues to spend more cash than it generates.

Bombardier moved to husband its resources in January, when it halted development of the Learjet 85 midsize business jet. But the Business Aircraft division is still expected to spend around $1 billion in 2015 on development, mainly of the long-range Global 7000/8000, while Commercial Aircraft is to spend another $900 million on the CSeries. Combined free cashflow is expected to be only around $1-1.4 billion.

Bombardier says the additional equity and debt will give it the financial flexibility to “explore other initiatives such as certain business activities’ potential participation in industry consolidation.” On a Feb. 12 conference call with analysts, neither Beaudoin nor CFO Pierre Alary would elaborate, although Beaudoin says Bombardier must decide how to respond to the $26 billion merger in December of China’s largest train makers if it is to remain a leader in that industry.

Analysts have suggested the company sell its Aerostructures unit, formed in July when Beaudoin split its Aerospace sector into discrete business, commercial and manufacturing units to streamline management. But 75% of Aerostructures’ business, expected to total $1.8 billion in 2015, is producing wings, fuselages, cockpits and nacelles for Bombardier aircraft.

Analysts have also suggested finding a partner for its commercial aircraft business. The company already has sold off its business-jet fractional ownership and military-pilot training units, but “participating in consolidation . . . does not necessarily mean selling,” says Alary. “It’s not that there is a business unit for sale today,” says Beaudoin. “It’s about positioning the company to lead in every market. If the industry is changing, we want to participate so we can continue to lead.”

Even with new financing in place, the company will continue to be controlled by the Bombardier family, of which Beaudoin is a member. Through so-called supervoting shares, the family controls 54% and will participate in the new equity issue “in a significant way,” says Beaudoin.

Bombardier has gone outside the company for its CEO before, appointing railway executive Paul Tellier to the position in December 2002 in a restructuring that saw the sale of its recreational products and non-core capital businesses. But Tellier departed early in December 2004, Laurent Beaudoin retaking the helm. Pierre Beaudoin then took over as CEO in June 2008; his first major action was launching the CSeries.

Beaudoin says he approached fellow French Canadian Belle-mare after the January announcement that he was leaving UTC, where he was president of the Aerospace & Propulsion business, which includes Pratt & Whitney, Sikorsky and United Technologies Aerospace Systems. Previously he was president of Hamilton Sundstrand and before that of Pratt & Whitney Canada in Montreal, across town from Bombardier.

http://aviationweek.com/commercial-avia ... M_MID=1811