Global 7000 Faces Two-Year Delay

 - July 30, 2015, 10:08 AM

Bombardier, citing complexities of developing its Global 7000/8000 program, is pushing back entry into service of the first model, the 7000, by two years. At the same time, Bombardier detailed plans for a roughly 30 percent cut in production of the existing Global business jet models.

Bombardier, which unveiled the Global 7000/8000 program in 2010, originally hoped to bring the large-cabin, long-range 7000 to market in 2016.  Now the company expects the 7000 will enter service in second half 2018. In a briefing for financial analysts today, the company did not specifically mention a revised timeline for the Global 8000, which is slightly shorter and has longer range of 7,900 nmi, but this is supposed to enter service a year later than the 7000.

Bombardier CEO Alain Bellemare called the 7000 a “game changing aircraft that will define a whole new category of business jet,” but said to develop the technologies involved “is a challenge.”  Bellemare called the advanced wing “the primary reason,” conceding “there has been some redesign.” The company is developing a wing that optimizes both short-field and long-range performance, he said. But the company also pointed to other systems, including a new high efficient engine, new advanced avionics and the four-zone cabin, its largest yet. 

The review of the program is “almost complete,” he said, adding the company is “confident in the performance of the aircraft and our ability to meet the new schedule.”  The first flight test vehicle is in final assembly with three more in various stages of production and assembly.  Also, the integration system test and certification rig has been commissioned.

Bombardier first indicated possibility of a schedule slip in earlier in July, saying it was conducing a “full review of all aspects of the program, including its schedule.”  The schedule slowdown comes as the manufacturer has grappled with cash struggles with the two-year delay and $2 billion in cost overruns in the development its CSeries airliner.

Bellemare detailed the new Global 7000 schedule during the company’s second quarter earnings release. He also reaffirmed plans to scale back production of its Globals to 50-60 a year.  This rolls back production to the 2012 levels.

Bombardier in May had announced plans for curbing production, but did not specify the extent of the cuts, but analysts predicted it would be in the 50-60 range.  The company also had announced it would lay off up to 1,750 workers.

Bellemare told analysts today that the company had significantly ramped up Global production after receiving some large orders.  Production had reached a rate of “80ish” a year, but he said that a rate of 50-60 aircraft a year is more sustainable over time.  “We made the right call” on the production cuts, Bellemare said, noting weakness in Russia, China and Latin America spurred a drop in second quarter orders.

The slowdown in production will affect cash this year and earnings next year, but Bellemare said the company was still quantifying those changes.  The company, however, did lower its margin guidance for business aircraft this year to 5-6 percent.

The extent of the Global 7000 delay and production cut plans did not come as a surprise. Rolland Vincent Associates president and JetNet iQ director Rollie Vincent said the announced plans were “entirely in line with our analyses.” He noted that the original production ramp up “was an internal decision and not reflective of overall market growth, in our view.”  While the market had improved, “demand certainly did not increase at that rate. We think the production output change was influenced by a need to increase cash flow to finance new aircraft development programs.”

He also believes claims of market softness “is a big disconnect: yes, emerging markets have weakened, but we see considerable strength in the U.S. market.” Pointing the strong results reported by rival Gulfstream yesterday, he said, “The contrast…is stark. Corporate buyers are back in the market, and Gulfstream is engaging with them.”

Bellemare did say activity has been good so far in the third quarter for Bombardier business aircraft.  And across the business aircraft portfolio, backlog has reached about $22 billion.

Also, business aircraft revenues in the third quarter climbed 12 percent to $1.8 billion as deliveries jumped from 38 in second quarter 2014 to 47 in the most recent quarter.  But orders slid from 30 in second quarter a year ago to eight last quarter.  Margin in the second quarter was 6.6 percent, down from last year’s 7.5 percent.

The company has cut down on white tail production.  Bellemare said there may have been one aircraft produced but not sold in the quarter.  “We understand what we have to do in second half,” he said. “We believe we will be able to deliver everything that we got.”