Bombardier CSeries loses to Boeing in United, Southwest deal
United Airlines said on Thursday it will buy 40 small planes from Boeing, dealing a $3.2 billion blow to Bombardier's hopes of landing a major customer for its fledgling CSeries program.
Separately, Southwest Airlines said it had ordered 33 of Boeing's 737-800 aircraft, a deal it struck in December but announced on Thursday.
Reuters reported last week that Boeing was poised to snatch at least part of Chicago-based United's order for small jets that seat about 100 passengers.
Boeing 737-700s can seat 126 people and will be flown by United's pilots, reducing its reliance on contractors as a shortage of regional pilots looms in the United States.
Canada's Bombardier has not landed an order in more than a year for the CSeries, a new carbon-composite aircraft whose two models seat between 100 and 160 passengers and are equipped with fuel-efficient Pratt & Whitney engines.
The orders suggest "good market demand" for aircraft after sales fell last year, said Howard Rubel, an analyst at Jefferies in New York. It also shows airlines prefer fewer models in their fleets, making cockpits more familiar to pilots.
"Commonality works," Rubel said.
'Business as usual' for Bombardier
Reuters reported in October that Bombardier had offered the CSeries to Southwest, a long shot since the airline maintains an all-Boeing fleet.
The CSeries is due to enter service in 2016 after years of delays and budget overruns. A spokeswoman for the Montreal-based plane and train-maker declined to comment on United's announcement.
"For us it's business as usual as we continue to pursue key campaigns," said spokeswoman Isabelle Gauthier.
Delta Air Lines on Tuesday said it was considering Bombardier's new aircraft.
Another competitor for the United order, Brazil's Embraer, declined to comment on the Boeing deal.
Gerry Laderman, United's acting CFO, told a quarterly conference call that fuel prices do not play a role in long-term fleet orders and that United is still considering other narrowbodies from Bombardier, Embraer and Boeing rival Airbus Group.
"As I mentioned we will continue to look at aircraft and we will continue to look at each of those types," Laderman said.
Bombardier reluctant to offer discounts
United is expected to buy more small jets because it lacks planes in the 100-seat niche, Cowen and Co. analyst Helane Becker said in a research note.
United, the second-largest U.S. airline by capacity, likely paid well below half the $80.6 million catalog price for the Boeing 737-700s, industry sources said. The plane is being phased out in favor of a newer model, the 737 MAX, and United's jets are due to start entering its fleet in mid-2017.
Airlines typically enjoy discounts of 40 percent or more on aircraft. Bombardier has been reluctant to discount the CSeries, a new product that has yet to recover development and early manufacturing costs.
Boeing's 737-700 long ago recovered such costs, allowing greater discounts for sales that help fill the production schedule as it shifts to the MAX, due to make its first flight this year.
Bombardier has 243 firm orders for the CSeries, shy of its target of 300 orders by the time the plane enters service.
In a note to clients, Desjardins analyst Benoit Poirier wrote Thursday that CSeries orders "will remain the key catalyst for Bombardier's share price" which dropped more than 7 percent in Thursday afternoon trading.
"We expect the market to remain skeptical and believe there is a real risk that the CSeries could be canceled if no orders materialize in the next six months," he wrote.