I published an analysis on the lack of CSeries orders at Farnborough on GLGNews today, and have added graphical data to that article for our Air Insight blog readers. As posted before the show on this blog, Air Insight did not expect orders for the CSeries at Farnborough, which turned out to be correct. In this posting, I explain the reasons for that and why it is too early to panic.
Bombardier did not receive any orders for its CSeries at the Farnborough Air Show, a disappointing performance. There are several reasons that occurred, and no need to panic, as the program remains likely to be a success. Bombardier’s CSeries has reached the same level of orders as the 737-700 and A319 competitors did at similar stages in their development. While it is still way too early to call the CSeries a resounding success, it certainly also way too early to call it a market failure.
While some in the media had high expectations for Bombardier going into Farnborough (especially analysts who don’t understand strict Canadian disclosure laws on major events that require immediate reporting of material agreements and letters of intent rather than saving them for the air show), we expected a muted response for several reasons.
With decisions on forthcoming re-engine programs by Airbus and possibly Boeing, as well as the upcoming engine tests at Pratt & Whitney on the first production version geared turbofan, potential customers are waiting for additional information before committing to a new program with new engine technology.
Bombardier had a couple of false starts while waiting for the next generation of engine technology; now the PW GTF has finally arrived. Perhaps a different name at re-launch, as the D series, would have helped Bombardier differentiate the current CS100 and CS300 from the earlier C110 and C130 designs.
The 737-700 had 69 orders in its launch year plus the following year, and the A319 had 73 orders in a similar period. The CSeries has 90 since Lufthansa placed its order in early 2009, and it has the remainder of 2010 to stretch that lead, which has a high likelihood.
Historically, several other programs such as the 757 and 737-200 were also slow starters. The 757 had only 38 orders in a similar two years period, and the 737-200 had 94 orders in a similar period; yet both turned out to be very successful airplanes. The jury remains out.
The following chart compares the order histories of the aforementioned aircraft, using the year of the launch order as year one.
It typically takes a slow starting program until the 3rd or 4th year after a launch order to significantly ramp up in orders – corresponding typically to a year or two before deliveries actually occur. In the case of the CSeries there are good reasons for airlines to delay — waiting for additional details on the PW engine and tests that prove its performance and maintainability, as well as waiting for Airbus and Boeing to announce their competing plans for re-engine or new aircraft.
The larger models of the 737 and A320 family, the 737-800 and A320, have very strong backlogs and orders. But in the range comparable to the CSeries, between 110 and 149 seats, it competes directly with the A318, A319 and 737-700 variants. Competing models from Embraer, Sukhoi and Mitsubishi are smaller than the CSeries while the 737-800 and A320 are significantly larger than the CSeries models.
From the date that Bombardier captured its launch customer in 2009 to June 30 2010, it has secured 90 orders and 90 options versus 41 orders for the 737-700, one order for the A318 and 44 orders for the A319. That represents a 51.2% market share for the CSeries since its launch in the segment in which it has chosen to compete. A majority market share typically doesn’t translate into failure.
At Farnborough, Airbus gained 5 orders for the A319, and Boeing announced n0ne for the 737-700 at the show, although each had more than a hundred orders for larger variants. (The RBS order for 43 737NG aircraft did not specify models, but is expected to be virtually all -800s.) Within this market segment, there simply wasn’t much action. That’s likely because customers are evaluating the CSeries seriously, especially after the open competition at Republic that led to a CSeries order. Boeing and Airbus are telling customer to wait for their announcement before ordering, and most want to hear what the big two will offer. Nonetheless, major orders from Qatar and China are still expected in 2010.
How Large is the Size of the Market the CSeries Targets?
Is the 110-149 seat market size enough to support the CSeries? Historically, it has been, with 1,250 A319 delivered from 1996-2010 and 1,036 737-700 from 1998-2010. Taken together, this averages about 175 aircraft per year. If Bombardier can maintain a 50% market share going forward and the market remains steady with no growth, it should sell 1,750 aircraft over the expected 20 year life of the program, which would clearly make the program profitable.
But since a re-engined A319 or 737-700 can’t provide the economic benefits of the CSeries, and an all-new Boeing would likely be larger than 150 seats, Bombardier may occupy a unique position within their seat-range segment for the next few years, and achieve an even higher market share.
And this segment could also potentially grow, as regional carriers find it more difficult to compete with larger aircraft, which have lower seat-mile costs and drive down yields.
The CSeries is economically competitive with today’s larger narrow-body aircraft, with similar seat-mile costs to the A320 and 737-800 but with much lower aircraft mile costs and fewer seats to fill to break even. As a result, airlines can provide competitive yields and still generate high load factors in small markets using the CSeries. Most airlines would rather fly a smaller aircraft full than a larger aircraft with empty seats.
The key question is whether that market niche will continue be large enough for the CSeries to become a success? While the jury is still out, history and growth trends are certainly on Bombardier’s side.
Is it premature to declare the CSeries a success? Of course, as the program is still young. But it is also absurd to conclude that the CSeries is a failure, or infer that by not securing firm orders at Farnborough as evidence that the program is headed for failure.
If by the Paris Air Show in 2011 there are no further orders, then we can consider there to be a problem. But for now, there’s a lot of noise in the background that Bombardier must shout over to break the sales logjam as this year progresses.