Bombardier banking on plane order from American Airlines

Bombardier’s bet on winning a plane order from American Airlines, a deal stalled by antitrust opposition to a merger with US Airways Group, is becoming increasingly crucial for the regional-jet pioneer.

Three other US airlines chose Embraer SA for regional planes this year, leaving American’s pending purchase as the biggest, and potentially only, sale available for months. Montreal-based Bombardier estimated the order may be for at least 70 aircraft, including options.

“It’s the last big regional-jet order that’s out there for quite some time,” Chris Murray, an AltaCorp Capital analyst, said in a telephone interview from Toronto. “If they win AMR, they’ll be able to sustain production levels for a year or two. If not, they’ll likely have to cut back.”

Since signing Delta Air Lines to an estimated $1.85 billion deal in December, Bombardier’s regional-jet order haul this year is just three 100-seat CRJ1000s, part of an aircraft category the company created more than two decades ago. Embraer has amassed more than $9 billion in business in 2013 from United Airlines, SkyWest and Republic Airways Holdings Inc.

American’s jet purchase may have a list value of as much as $2 billion, according to Walter Spracklin, an RBC Capital Markets analyst in Toronto. While Bombardier Chief Executive Officer Pierre Beaudoin focuses on the bigger CSeries single-aisle jetliner over the planemaker’s regional-aircraft offerings, Brazil’s Embraer is pushing ahead with upgraded versions of its commuter models.

That competition is eroding manufacturing revenue from Bombardier’s commercial aircraft unit while the company awaits the entry into service of the CSeries — which can seat as many as 160 people — in about a year. Last year’s total of $1.1 billion was the lowest in at least a decade, annual reports show. Sales at the unit last year amounted to about one-quarter of the total in Bombardier’s 2004 fiscal year. The stock has declined 8.9 per cent in five years, trailing the 76 per cent gain for the Standard & Poor’s/Toronto Stock Exchange sub-index of Canadian industrial companies. Shares of Sao Jose dos Campos, Brazil-based Embraer rose 43 per cent in the same period.

Aerospace sales, including regional and business jets as well as turboprops, accounted for 51 per cent of Bombardier’s $16.8 billion in 2012 revenue. Bombardier also sells locomotives, passenger rail cars and signaling equipment, among other products. American, which seeks to exit bankruptcy via the US Airways merger, doesn’t control the timing of its order. The airline said in a court filing that the US Justice Department’s August 13 antitrust suit to block the tie-up would delay the regional- jet purchase because financing was at risk.

It’s shopping for new planes after winning revised labour agreements that let pilots for its regional operations fly bigger aircraft. Regional pilots earn less than those on domestic and international routes, giving airlines an incentive to opt for larger planes, such as the 76-seat CRJ900 NextGen models bought by Delta, for their commuter units. —