Bombardier Inc. T.BBD.A

Did United Just Make Room for the CSeries?

[jamesb14]

Check out this post below, this would be interesting, wouldn't it?

https://www.flyertalk.com/forum/united-airlines-mileageplus/1802538-ua-defer-65-737-700-orders-61-switched-737-max-4-738-a-2.html

We can't say for sure, but management changes and pressure from Wall Street to reduce capex and focus on closing the margin gap with Delta may have played a role. Still, there is no way that United orders a total 65 73G frames (in two separate transactions) without a plan as to how to deploy them. Even less realistic is that market conditions have changed so much since the spring that the need for those aircraft suddenly vanished.

IMO, the CSeries to UAL possibility is not dead. It was noted that United struck a deal in a sale/leaseback scenario with Republic for the E75s it has under contract, and that piqued my interest as to the latest status of RAH's CSeries order. Interestingly, it seems there has been a recent development (October 20) on that front, insofar as RAH and Bombardier reached a settlement on the deferral, not cancellation of Republic's orders for 40 firm + 40 options. Court approval of that settlement will be sought at a hearing in the SDNY on Thursday. See, https://airinsight.com/2016/10/28/upd...cseries-order/

A bankruptcy judge's approval of the settlement opens the door for UAL to possibly engage in negotiations with BBD for takeover of the RAH order, presumably with a starting point of the same terms DAL got. RAH can't fly those airplanes for a major given the current state of scope in the industry, and there's no way a creditor would sign on to a reorganization plan for Republic that includes its own branded flying. So those orders are, as noted at length, true orphans... and BBD desperately needs to sell more CSeries.

Enter United and its new management/BOD, particularly Scott Kirby. Kirby historically has not strayed away from allocating significant flying to regionals (many of which were owned by US Airways/AA Group), especially in the large RJ category, and United is already at the 255-frame ceiling of 70/76 seaters under the current pilot contract. The 73G order does nothing to trigger the 'new small narrowbody' (NSNB) provision of the pilot agreement, and results in a major capex hit for an end-of-the-line airplane that will have limited residual value after its useful life with UAL and won't generate the same cash flow as larger variants in the same family while in service. There is a business case for the 73G at the right price, but if United doesn't have a NSNB coming (and, not to mention, an aircraft in the 100-seat category in general), it loses out on flexibility on the regional side and, unfortunately, continues to be overly reliant on 50-seat capacity... albeit several orders of magnitude less in that department as compared to 2012 or so.

So, United defers the 737s, cuts a deal with RAH/BBD, uses the CS to address the small narrowbody market segment, achieves the NSNB trigger to increase flexibility in the regional fleet/continue to pull down 50-seaters, and gains positions in two next-generation aircraft families that will be able to generate greater cash flow/ROIC over time than current-gen alternatives.

Makes a lot of sense to me, but we'll see how it plays out. The Republic CS order to UAL rumor has been floating around for a long time, at least since their BK filing.