Bombardier, Inc.: Will Canada Jetlines Be the Next CSeries Customer?

Canada Jetlines CEO Jim Scott said the company could buy CSeries jets from Bombardier, Inc. (TSX:BBD.B) under one condition.

| More on:
The Motley Fool

While appearing on The Business News Network, Canada Jetlines CEO Jim Scott said the upstart airline could, in theory, purchase CSeries aircraft. But he said that before that happens, Canada would need to repeal a law that limits foreign ownership of airlines to 25%.

So what exactly is Canada Jetlines, and why does the CEO want this law repealed? More importantly, could this airline be a future CSeries customer?

Canada Jetlines

Ultra-low-cost carriers (ULCCs), such as Ryanair in Europe and Spirit Airlines in the United States, have historically been able to achieve 30% lower costs than other scheduled carriers. These savings come primarily from cramming more seats into each aircraft, reducing freebies to passengers, and using second-tier airports. These savings, of course, result in far lower airfares.

Canada is still the only country that doesn’t have an ULCC, something that Canada Jetlines hopes to change. The carrier has plans to operate with bases in Vancouver, Winnipeg, and Hamilton with a focus on secondary routes that are underserved by the major airlines.

Canada Jetlines is still in stage two of its funding efforts and won’t make its first flight until the completion of stage four. But the company has already ordered five single-aisle airplanes and plans to operate 40 aircraft by its eighth year of existence. There’s nothing wrong with ambition.

Why the CEO wants the foreign ownership rule lifted

During his appearance on BNN, Mr. Scott said that it is difficult to raise capital in Canada in today’s economic climate. And it’s especially challenging for an airline, because Canada has a rule that caps foreign ownership of airlines at 25%.

This rule throws a major wrench in Canada Jetlines’s growth strategy, because the company needs extensive financing to add more planes.

Is this a future CSeries customer?

During his interview, Mr. Scott said that the CSeries is a wonderful airplane and that he would absolutely consider purchasing it. But there are a few reasons we shouldn’t take his comments too seriously.

First of all, he’s not the only airline executive to hype up the CSeries. For example, Delta Airlines CEO Richard Anderson said earlier this year that the CSeries is “quite a competitive airplane” and that the airline is “taking a serious look at it.” But these comments are usually nothing more than negotiating ploys aimed at Boeing and Airbus.

Secondly, Canada Jetlines already had the opportunity to order the CSeries, but it went with Boeing 737 MAX 7s instead.

And finally, one of the CSeries’s key selling point is its reduced noise level. But this is less important for an ULCC, partly because passengers care more about cost than noise, and also because the airline doesn’t use city-centre airports.

To be clear, the Canadian government should still change its foreign ownership rule for airlines. But doing so would not lead to more CSeries sales.

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

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

1 Growth Stock With Legit Potential to Outperform the Market

Identifying the stocks that have outperformed the market (in the past) is relatively easy, but selecting the ones that will…

Read more »

healthcare pharma
Tech Stocks

Well Health Stock Is Up 7% After Earnings: What Investors Need to Know

Well Health is benefiting from strong demand as it digitizes healthcare and strives to improve patient outcomes.

Read more »

money cash dividends
Dividend Stocks

Passive Income: The Investment Needed to Yield $1,000 Per Annum

Do you want to generate a juicy passive-income stream? Here's a trio of stocks that can generate a yield of…

Read more »

Dividend Stocks

Here’s the Average TFSA Balance in 2024

The average TFSA balance has steadily risen over the last six years and surpassed $41,510 in 2023. Will the TFSA…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,500.50 in Passive Income

If you have $10,000 to invest, then you likely want a core asset you can set and forget. Which is…

Read more »

Supermarket aisle with empty green shopping cart
Stocks for Beginners

Is Dollarama Stock a Buy?

Dollarama stock (TSX:DOL) has seen shares surge on the back of strong performance and a dividend boost, but it also…

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

TFSA Set and Forget: 2 Dividend-Growth Superstars for the Long Run

I'd look to buy and forget CN Rail (TSX:CNR) and another Canadian dividend-growth sensation for decades at a time.

Read more »

Payday ringed on a calendar
Dividend Stocks

1 Passive-Income Stream and 1 Dividend Stock for $781.48 in Monthly Cash

Looking for passive income? Don't take out a loan with that high interest involved. Instead, consider this method for years…

Read more »