Bombardier Seeks Financing to Develop 100-Seat Plane (Update2)
Sept. 21 (Bloomberg) -- Bombardier Inc. needs to line up financing from governments and suppliers before it can move forward with plans to spend about $2 billion to develop its first aircraft with more than 100 seats, a company executive said.
The costs would be covered in equal parts by suppliers, government loans and the company's own financing, said Gary Scott, head of a study by Bombardier on the plane's development. Bombardier is asking for loans from the Canadian government and from local governments where the Montreal-based company builds smaller regional and business jets.
``We're on track, but it's still to be determined whether we can close the loop on all those business issues,'' Scott, 53, said at the Aerospace Industries Association of Canada annual meeting in Ottawa. ``The most challenging piece is the business solution, making sure that we have a solution that is attractive to our customers and our shareholders.''
Bombardier, the third-biggest commercial aircraft maker, is struggling to win aircraft orders as airline customers such as Delta Air Lines Inc. and U.S. Airways Group Inc. post losses. The company will decide in February whether to build the plane, which would pit it against Airbus SAS and Boeing Co., currently the only makers of jetliners with more than 100 seats.
Risk Sharing
The project includes ``a complicated business model where Bombardier, along with risk sharing-suppliers and government partners, put together the model to serve the market that produces value for all the stakeholders involved'' Scott said.
Scott, who worked at Boeing for 28 years and oversaw development of the latest versions of Boeing's 110- to 198-seat 737, was hired by Bombardier in March to develop the larger model. Scott expects to have 300 employees working on the project by the end of this year.
Bombardier will pick a site to assemble the plane by the end of this year. Scott said he expects that about 2,500 Bombardier employees will assemble the aircraft and suppliers will commit another 2,500. If the project moves forward, the plane is scheduled for first delivery in 2010.
Bombardier has created 12 work packages for the project, such as the nose and the wings. Suppliers may participate by taking on some of the development costs included in those packages, or by contributing cash to finance the project, Scott said.
Pitching In
Local governments that may participate include the Canadian provincial governments of Quebec and Ontario along with officials in the U.K., Northern Ireland and the U.S.
Bombardier is asking the governments to ``take a look at helping on the front end and on the back end with the customer financing,'' Scott said. ``All of those discussions I would characterize as very serious and very real.''
``On the upfront side, on the initial investment, really what we're looking for is a loan to help fund the investment which will be repayable based on the success of the program,'' Scott said. ``They are partners in the sense that they are investing in the program.''
Bombardier's new plane, called the C Series, would have three versions with 110 seats to 135 seats. It would be Bombardier's biggest aircraft, beyond the company's 86-seat CRJ900.
Competing Models
The C Series would compete against Airbus's A318 and Boeing's 717 and 737-600. Its list price would be around $44 million, the price of Boeing's cheapest 737, Scott said. Scott expects that airlines also will buy the aircraft to replace their MD-80, Fokker, DC-9 and 737 versions that are no longer produced.
Bombardier Chief Executive Officer Paul Tellier wants the plane to be at least 15 percent more fuel efficient than competing models. Boeing and Airbus are both concentrating on developing bigger aircraft with more than 200 seats.
Airlines will need 6,000 aircraft with 100 seats to 150 seats in the next two decades, creating a $250 billion in potential sales for that size plane, Bombardier has said.
Bombardier shares rose 3 Canadian cents (2 cents) to C$2.78 in Toronto Stock Exchange trading. They have fallen 51 percent over the past year.
Bombardier's second-quarter profit declined 66 percent as its aircraft unit had lower deliveries and higher costs for sales incentives. Tellier is slowing production of regional jets, airliners with fewer than 100 seats, after U.S. Airways sought bankruptcy protection and Delta contemplates doing the same. The airlines are two of Bombardier's biggest customers.
Last Updated: September 21, 2004 16:25 EDT
In the business world, the rearview mirror is always clearer than the windshield...W. Buffett
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