Bombardier, Inc.: Even After Certification, the CSeries Faces Some Major Challenges

Bombardier, Inc. (TSX:BBD.B) will face challenges with the CSeries for many years.

| More on:
The Motley Fool

It’s safe to say that the CSeries has been a disaster thus far for Bombardier, Inc. (TSX:BBD.B). This was confirmed by the company last week, when it wrote down the program’s value by US$3.2 billion.

Thankfully, the first of the CSeries planes–the CS100–is nearing certification. But that doesn’t mean the troubles are over for the company.

Securing deliveries

The CSeries has secured 243 firm orders thus far, along with over 100 commitments. And starting in 2016, the company will attempt to maximize deliveries. That will not be an easy task.

Let’s start with Republic Airways. The Indianapolis-based regional airline ordered 40 CSeries aircraft all the way back in 2010, but it has no use for the planes now. The airline doesn’t even have enough carrier certificates to operate the CSeries. This order should still go through, but most analysts think the order will be transferred to another buyer. That won’t help Bombardier as it attempts to secure more orders.

Bombardier also has a conditional order from Porter airlines, which hopes to fly the CSeries from the Billy Bishop Airport located on the Toronto islands. But the newly elected Liberal Party of Canada opposes the plan and has the power to stop it.

There are other orders that should raise worries. Odyssey Airlines, which has a firm order for 10 CSeries planes, is still trying to raise money through crowdfunding. And a total of 65 CSeries orders come from customers based in Russia or the Middle East.

Cash flow will remain an issue

Even after Bombardier starts delivering the CSeries, the program will not be cash flow positive. In fact, analysts are estimating that the CSeries will be a cash drain until the year 2020.

When asked a question on this topic, CEO Alain Bellemare did not provide any numbers or timetables. But he acknowledged that in the aircraft business manufacturing costs tend to start out very high before coming down eventually over time.

Unfortunately for Bombardier, this means the company will certainly need more funding, and it may have to come from public sources.

A larger aircraft?

If Boeing or Airbus had designed the CSeries, then a larger aircraft would probably be in the works. After all, such investments are usually worth the cost since most of the engineering work is done already.

Bombardier has not ruled out a similar move and has even copyrighted the phrases CS500 and CS900. But with cash flow being such a problem, you should not expect to see larger CSeries aircraft anytime soon.

To make a long story short, if you’re looking for a predictable future or quick results, then you should sell your Bombardier shares right away.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »