Bombardier secures Delta order for up to 125 new CSeries jets

Montreal-based Bombardier Inc. says it has received a big order for its CSeries passenger jets in a deal with U.S. carrier Delta Air Lines Inc. that boosts confidence in the plane maker.

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Delta has placed a firm order for 75 CS100 aircraft with options for an additional 50 units, Bombardier saidThursday, which makes Delta's the largest order yet for the CSeries aircraft.

"The addition of Delta to our marquee CSeries customer list gives us tremendous momentum,"Bombardier CEO Alain Bellemare said.

Delta praised the "state-of-the-art interior" of the CS100s and said they are designed to deliver an expected 20 per cent improvement in fuel efficiency over similar sized aircraft.

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The deal also includes a clause that would giveDelta the option to convert a number of the planesinto the larger and more expensiveCS300version down the line.

The CSeries jets are due to be put into service with Delta in the spring of 2018.

At list prices, the deal could be worth almost $6 billion to Bombardier, but Desjardins analyst Benoit Poirier suggests Bombardier will likely give the airline a volume discount for such a large order.

"We do expect steep discounts, given the size of the order and the quality of the customer," he said in a note to clients early Thursday.

Poirier also notes the aerospace company expects to take a $500 million "contract provision"hit next quarter related to recent CSeries sales to Delta, Air Canada and Air Baltic.

Price tagunclear

"Nevertheless, we believe this commitment sends a strong signal for the long-term viability of the CSeries program, and will likely create a snowball effect for further orders from marquee customers," singling out JetBlue and British Airways in particular to be likely future customers.

Airline consultantPierre Jeanniot agrees that Delta is likely getting a discount of as much as 40 to 50 per centon the planes for the public vote of confidence they are giving to Bombardier.

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"It works both ways," he said in an interview. "Airlines tendto customize the planes they buy and it is a lot cheaper to manufacture 50 identical planes than 50 with subtle differences on each one."

Bloomberg Intelligence analyst George Ferguson told CBC News in an interview Thursday that the total value of the contract is likely closer to $2 billion for Bombardier, but it's nonetheless good news for the company as he said the pact "gives more momentum to the program."

While the details of how much cash Bombardier will get up front are secret, Jeanniot says it is typical to pay something in the range of 10 per cent up front. That's cash Bombardier desperately needs, as theCSeries program is two years behind schedule and has incurred about $2 billion US in cost overruns.

Beyond cash, the move is symbolically important for the company. "The CSeries is a game-changer and this order is changing the game," Bellemare said at a news conference to discuss the deal Thursday. Moments earlier, he had turned toDelta's CEOEd Bastianand said, "We will always be there for you" an assurance that many airlines have needed to hear lately as Bombardier's problems mounted.

Prof. Ian Lee at theSprott School of Business at Ottawa's Carleton University said the deal makes a government bailout less likely. But Ottawa still has a key role to play, he said. Rather than needing to invest funds in the company, Ottawa could issue a "statement saying they stand behind Bombardier now and in the future instead of actually investing the $1 billion."

Red ink in earnings despite deal

A backlog for Bombardier worth $58.9 billion was reported in its first-quarter financial results released Thursday against revenues that fell nearly 11 per cent.

But Bombardier has signed deals in recent months to sell the planes, including a letter of intent in February where Air Canada would buy 45 CSeries jets, with an option to purchase up to 30 more of the aircraft.

Swiss Airlines is scheduled to be the first carrier to put the plane into commercial service in July.

The order came as Bombardier reported a first-quarter loss attributable to shareholders of $161 million US, or seven cents per share. That compared with a profit attributable to shareholders of $98 million US or five cents per share a year ago.

Revenue for the quarter fell to $3.14 billion US compared with nearly $4.4 billion US in the first three months of 2015.