Sales prospects for Bombardier’s C Series jetliner, which cost at least $6 billion to develop, dimmed after the U.S. Commerce Department slapped it with preliminary import duties of 220 percent. But one European airline said it’s considering an expanded order for C Series jets.
Bombardier shares plunged the most in almost two years after the U.S. levied import duties on the Canadian company’s priciest jet, rattling some of Washington’s closest allies and aggravating a trade dispute.
Sales prospects for Bombardier’s C Series jetliner, which cost at least $6 billion to develop, dimmed after the U.S. Commerce Department slapped it with preliminary import duties of 220 percent. The agency late Tuesday cited a complaint by Boeing Co. that the aircraft had received improper subsidies in Canada.
The restrictions create a new hurdle for Bombardier Chief Executive Officer Alain Bellemare, who is trying to turn the company around after the C Series came in more than two years late and about $2 billion over budget. Bombardier hasn’t booked a major sale of C Series jets since an April 2016 deal with Delta Air Lines that had a list value of more than $5 billion — before discounts that according to Boeing were unfairly large.
“While Delta has publicly spoken highly about the C Series, the risk of this order being rescinded will continue to weigh on Bombardier’s share price,’’ Kevin Chiang, a CIBC World Markets analyst, said in a note to clients Wednesday. “C Series sales campaigns have likely stalled in the U.S. until a final ruling is made.”
Bombardier’s widely traded B shares dropped 7.5 percent Tuesday in Toronto after sliding as much as 16 percent for the biggest intraday decline since October 2015.
Bombardieralso was left out in the cold Tuesday when Germany’s Siemens spurned the Canadian company as a partner for a major rail merger in favor of France’s Alstom.
Quebec Premier Philippe Couillard, who spearheaded the province’s decision to invest $1 billion for a 49.5 percent stake in the C Series program, said the move wasn’t a subsidy, dismissing Boeing’s claim as proof of the company’s “bad faith.’’ He urged Canadian Prime Minister Justin Trudeau to “take a very hard line.’’
“Not a bolt, not a part, not a Boeing plane entering Canada as long as this conflict is not solved in a satisfactory way,’’ Couillard said at a news conference in Quebec City. “Quebec is attacked, Quebec will resist.’’
On one point, Couillard appeared to agree with Boeing: that the province’s investment was instrumental in saving the jet, if not Bombardier as a whole.
“Without the way we intervened, without the specific investment in the C Series program, the program would not exist today,’’ he said. “There would be no C Series, and there would probably be no Bombardier Aerospace.’’
Cameron Doerksen, an analyst at National Bank Financial, said in a note to investors that “it is not clear that this very high preliminary duty is any indicator of the ultimate outcome.”
Over the short term, the Canadian company will have to focus marketing outside the U.S., he said.
“Bombardier may be able to find enough international customers to still ramp up production in the next few years,” Doerksen wrote.
Air Baltic is set to buy as many as 14 of Bombardier’s CS300 models “definitely before the end of next year,” the Latvia-based carrier’s CEO, Martin Gauss, said Wednesday in an interview.
“It’s not clear when we will place the order, but we will replace our turboprops with C Series.”
Based in Riga, Air Baltic already flies seven CS300s and has pending deliveries for 13 more.
He added that the preliminary U.S. ruling on aircraft “doesn’t change our confidence in the C Series,” Gauss said. “This is a political issue. It has nothing to do with the aircraft.”
A major C Series order from a non-U.S. carrier would alleviate fears that a ramp-up in production would be interrupted next year or in 2019, said Nicholas Heymann, an analyst at William Blair & Co.
“This is a hot-button issue for investors,” he said by telephone. “Air Baltic is not a major airline, but they are an existing user that’s coming back, so this will definitely be constructive for Bombardier.”
Air Baltic’s CS300 planes are burning about 21 percent less fuel than the aging Boeing 737-300 aircraft they are replacing, with longer flights typically yielding greater savings, Gauss said. Some of the jets have been flying as much as 17 hours a day, serving routes such as Riga-Madrid and Riga-Baku.