Pressure's on Bombardier to develop new jetsPressure's on Bombardier to develop new jets
Market shift to bigger mid-size planes forcing company's hand, analysts say
By BERTRAND MAROTTE
Friday, September 24, 2004 - Page B2
MONTREAL -- Bombardier Inc. may have no choice but to move ahead with development of a new family of mid-size jets despite soaring cost estimates, according to some analysts and consultants.
"They're between a rock and a hard place. They really have to do this," said William Dane, senior aviation analyst with Forecast International/DMS Inc. in Newtown, Conn.
The market for regional jets is shifting as airlines move to larger, more economical airplanes in the 100-seat-plus category and Bombardier simply can't afford to miss out on that niche, he said.
Montreal-based Bombardier already passed on the opportunity to steal a march on its rivals three years ago when it shelved a feasibility study for a new-generation 100-seat-plus jet known as the BRJ-X, he added.
Bombardier Aerospace spokesman John Paul Macdonald said in an interview yesterday that the original new-jet cost estimate of the equivalent of between $1.17-billion (U.S.) and $1.56-billion -- first stated publicly in February -- is now closer to $2-billion.
"That [original] figure was based on the BRJ-X experience and was for one single aircraft," Mr. Macdonald said.
But former Boeing Co. executive Gary Scott, hired in March to head up Bombardier's new aircraft program, recommended creation of a platform for a family of four jets, which has helped bump up costs, Mr. Macdonald said.
The new estimate of $2-billion excludes the cost of developing a long-range, high-efficiency engine, but that would likely be borne by the engine makers, he said.
Bombardier executives have said the company is not under the gun and won't proceed with a new jet program unless the airplane can leapfrog over existing product and offer about 15 per cent in operating cost improvements to airline operators.
Michael Boyd, head of Evergreen, Colo.-based industry consultants Boyd Group, said yesterday that he isn't buying that argument.
"I'm betting that if [Bombardier] doesn't do anything, it's out of the airliner business," he said.
"Taking that risk is worth $2-billion," he added.
Analyst Cameron Doerksen of Dlouhy Merchant Group Inc. in Montreal stressed that the "estimates are just that -- estimates. If the company believes it needs to go ahead with this airplane to be competitive, whether it's $2-billion or $3-billion [Canadian], they will go ahead and do it."
Bombardier, still struggling to recover from a prolonged slump in the regional-jet market, is lobbying the Canadian and British governments, as well as Quebec and Ontario, for financial assistance on the project.
Chief executive officer Paul Tellier has said the company would anticipate assuming about one-third of the project's total cost, with risk-sharing suppliers and governments participating in the remaining two-thirds.
A decision on whether to proceed with the new family of jets is expected early next year.