BUSINESS

Bombardier set to begin key integrated CSeries testing ahead of first flight

08/09/2012 07:06 EDT | Updated 10/09/2012 05:12 EDT
MONTREAL - Bombardier is beginning critical testing this month on key components of its new CSeries aircraft as it prepares for the aircraft's maiden flight in December.

"One of the challenges in a complex program like this is what you don't know. Testing exists so that we can learn," president and CEO Pierre Beaudoin said Thursday during a conference call about second-quarter results.

The Montreal-based company, which reports in U.S. currency, saw its profits slip nearly 14 per cent to $182 million in the period ended June 30.

It had 10 cents per diluted share of net income in the second quarter, down from US$211 million or 12 cents per share a year earlier.

Analyst estimates compiled by Thomson Reuters had also been for 10 cents per share of profit.

Revenue fell to $4.2 billion from $4.7 billion, with all of the decline attributed to the timing of certain large contracts at the Transportation rail division.

Analysts had been expecting $4.6 billion of revenue but it appears the company expects to make up lost ground later in the year.

Beaudoin said testing of a new plane design is exciting as lots of components arrive at its CIASTA (Complete Integrated Aircraft Systems Test Area) facility in Mirabel, Que. Testing will also take place at suppliers around the world.

Bombardier (TSX:BBD.B) will check the entire aircraft to ensure systems work together on the ground and with flight test planes. The process will last beyond certification in about 18 months to ensure the reliability of components.

"It's the beginning of a long period of several years," Beaudoin said.

Among the components at the top of Bombardier's list to watch is the fly-by-wire system that will navigate the 110- to 149-seat CSeries aircraft. It marks the first time that the world's third-largest aircraft manufacturer is building a plane entirely using electronic rather than manual flight controls.

"It will remain top of list all through the flight test until delivery because it's the first time for us to do an all fly-by-wire aircraft."

While Beaudoin said Bombardier is working towards a first flight in December, he would consider a delay of three to five months to be "on time" given the complexity of the effort and the performance of other manufacturers.

Beaudoin said customer enthusiasm for the plane is growing as its fuel-saving performance is confirmed and it stacks up well against rivals that are putting new engines on their existing planes.

Bombardier Aerospace increased its second-quarter revenue by $200 million to $2.3 billion as it delivered 62 aircraft, compared to 56 last year.

It said the level of new business jet orders was strong and the momentum continues in commercial aircraft with 174 orders and other agreements announced so far this year. The company expects to deliver 180 business aircraft and 55 commercial planes this year.

Among the contracts are a $7.3 billion deal from NetJets for 100 Challenger business jets and 175 options, an order from WestJet (TSX:WJA) for 20 Q400s plus options for 25 more planes to launch a regional service and a San Francisco rail tender worth $895 million.

Transportation revenues were lower in the quarter due to the timing of completion of certain large contracts while major new orders are still in the start-up phase.

Still, it had $2.9 billion of new orders in the quarter, especially in North America and Europe.

"We had mixed results in the second quarter," Beaudoin said, adding he expects full-year aerospace results will be in line with prior guidance and transportation revenues will be down by single digits.

"We're making good progress on our product development programs so these combined with our large existing backlog of $56.9 billion positions us very well."

Bombardier used $642 million of free cash, had $2.5 billion in cash and $1.4 billion of available credit.

Cameron Doerksen of National Bank Financial said some investors may be concerned with the results, especially at Bombardier Transportation.

"We are not overly concerned, however, as the strong Bombardier Transportation backlog will support higher revenue and margins in the coming years," he wrote in a report.

Meanwhile, Beaudoin said Bombardier's regional jets would be an ideal fit for Air Canada (TSX:AC.B), which is considering whether to replace its Embraer 175 planes following a new labour agreement with pilots.

"I think our regional jet has demonstrated that it's got better economics and I think that it can represent an opportunity for us. The CSeries may also be an opportunity at Air Canada but not to replace these smaller Embraers."

Bombardier has 33,600 employees and production facilities in 24 countries. It is the world's third-largest commercial aircraft manufacturer after Boeing and Airbus and the largest maker of business jets and trains.

On the Toronto Stock Exchange, its shares fell 13 cents, or 3.46 per cent, at C$3.63 in early afternoon trading.