Company under pressure to develop new jets to compete with larger regional jets

Bombardier is feeling the heat these days -- not from the weather, but from the competition. Airline industry analysts are telling the company that if they do not move to stay in the market with new mid-size jets, they risk being left behind... permanently.

"They're between a rock and a hard place. They really have to do this," said William Dane, senior aviation analyst with Forecast International/DMS Inc. in Newtown, Conn. told the Canadian Globe and Mail.

The problem for Bombardier is that the market is shifting. Airlines are moving to larger, more economical regional jets in the 100+ seat category, and Bombardier doesn't have a product in that niche. Either it develops one, or it misses the opportunity, which could have disastrous consequences for the company.

That's the rock. The hard place is that the cost of developing the jet needed to compete in that arena is estimated to be some $2 billion, up from the $1.17 billion to $1.56 billion that was originally estimated back in January. Three years ago, the company cancelled the BRJ-X project for a 100+ seat regional jet. Since then, costs have gone up significantly. "That [original] figure was based on the BRJ-X experience and was for one single aircraft," Mr. Macdonald said.

Since then Bombardier has also brought in a new person to head the new aircraft program, Gary Scott, formerly of the Boeing Co. He has recommended the creation of a platform for a family of four jets, and that has bumped up the costs as well. On top of that, the $2 billion estimate doesn't include the cost of developing a high efficiency engine that will give the jet the range it needs to compete in the market. Fortunately, that cost is expected to be absorbed by the companies that design and make the engines. Bombardier does not have a presence in that market.

The executive team at Bombardier are resisting the pressure by arguing that they should not proceed with a new jet program unless they can offer something other than a "me too" product. They feel that if that much money is going to be spent, it has to be to develop an aircraft that an offer better operating costs than what's out there right now.

Michael Boyd, head of Evergreen, Colo.-based industry consultants Boyd Group, says he's not buying that story. "I'm betting that if [Bombardier] doesn't do anything, it's out of the airliner business," he said. "Taking that risk is worth $2-billion."

To soften the tab for such a project, the company is lobbying the Canadian and British governments for financial assistance. It's also making the same pitch to Queben and Ontario. CEO Paul Tellier says he expects Bombardier should assume one third of the risk, with suppliers and the government assuming the other two thirds.

FMI: www.bombardier.com