Bombardier, Inc.: The 3 Biggest Obstacles Facing the CSeries

Why is Bombardier, Inc. (TSX:BBD.B) having trouble securing orders for the CSeries?

| More on:
The Motley Fool

Bombardier, Inc. (TSX:BBD.B) endured yet another setback on Thursday morning as United Continental Holdings Inc. agreed to buy 40 Boeing Co. 737-700 aircraft.

This means that the CSeries has still yet to secure an order from a major North American airline. And it hasn’t secured any firm orders since September 2014. Bombardier maintains that the CSeries is “a top contender in several key campaigns,” but this does not bode well for the plane over the long term.

So why is Bombardier having so much trouble selling the CSeries? We take a look below at the top three reasons.

1. A need (and an unwillingness) to discount

The last day that Bombardier secured a firm CSeries order was also the last day that oil traded for more than US$95 per barrel. That is no coincidence. As oil prices continue to languish, airlines simply have less incentive to spend big money on a fuel-efficient plane like the CSeries.

Making matters worse, both Boeing and Airbus have been discounting their planes in an attempt to keep the CSeries at bay.

Clearly, Bombardier needs to discount the CSeries as well, but as a smaller company it simply doesn’t have the scale advantages of its larger competitors. So if Bombardier does discount the CSeries, then it will have trouble making profit. Even as it stands the company will not actually generate a profit from the CSeries until 2020.

2. Opting for larger planes

The CSeries competes with the smaller planes from Airbus and Boeing. But none of those planes have been selling particularly well as airlines have generally opted for larger models.

One reason for this shift is a looming pilot shortage. As the baby boom generation retires, air traffic is quickly growing, especially in emerging markets. This is putting a premium on the remaining pilot cohort, which incentivizes airlines to transport the same people on fewer flights.

For Boeing and Airbus, this isn’t a problem. They have a complete suite of models. But for Bombardier, this is yet another obstacle that must be overcome.

3. Doubts about the future

There are legitimate concerns about the future of the CSeries program. And that in turn is hurting sales, thus creating a vicious cycle that’s very hard to break.

It’s understandable that airlines don’t want a so-called orphan plane. It would mean owning a plane with little resale value and higher training costs for pilots. There are also cost savings by going with only one supplier; for example, Southwest Airlines and Ryannair get their aircraft exclusively from Boeing.

So Bombardier still has some major obstacles with the CSeries, and shareholders should not be expecting quick results.

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

Canadian flag

1 Magnificent Canadian Stock Down 4 Percent to Buy and Hold Forever

Here's one magnificent Canadian stock long-term investors may want to add, despite the company being near its all-time high.

Read more »

four people hold happy emoji masks

Why Canadian Investors Should Consider Investing in U.S. Stocks

U.S. lender Oaktree Specialty Lending (NASDAQ:OCSL) has an even higher yield than Toronto-Dominion Bank (TSX:TD).

Read more »

consider the options
Dividend Stocks

Is TD Bank the Best Dividend Stock for You?

Toronto-Dominion Bank (TSX:TD) has a high dividend yield but is embroiled in a serious money-laundering scandal.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

How to Use Your TFSA to Earn $6,000 Per Year in Passive Income

Hint: You'll need this Hamilton covered call ETF, which yields over 10%.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, June 21

Overnight weakness in metals prices could pressure TSX mining stocks at the open today.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.

TFSA: 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Here are two TFSA stocks that have excellent capital gains potential as they are leaders in their respective industries.

Read more »

Growth from coins
Dividend Stocks

2 Dividend-Growth Stocks With TSX-Beating Potential That Deserve More Respect

Here are two of the best TSX dividend-growth stocks you can buy today and hold for the next decade.

Read more »

A stock price graph showing declines
Bank Stocks

TD Stock Has Fallen to a Low of $73: Is it Done Dropping?

TD (TSX:TD) is often viewed as a great long-term investment. But given its volatility in recent months, has TD stock…

Read more »