Hard on the heels of two significant deals for the re-engined Airbus A320neo, Raymond James has downgraded its rating of Bombardier, saying it is increasingly mindful of the A320neo's "rapid adoption" and the "potential impact" on the business case for the CSeries.
Virgin America this week became the first airline to order the A320neo, after committing to 30 of the type. A week earlier, Indian low-cost carrier IndiGo tentatively agreed to take up to 150 of the new variant. Both deals are part of wider orders for A320s, and neither carrier has indicated whether it will take the CFM International Leap-X or the Pratt & Whitney geared turbofan on offer with the A320neo.
The commitments, taken together with ATR's plans to increase turboprop output by 37%, "point toward a recovery in commercial aerospace equipment spending", says Raymond James analyst Steve Hansen in a Bombardier research note.
"However, many of these same 'catalysts' carry a negative implication for Bombardier in our view - most notably the A320neo's ability to edge out the CSeries in competitive bids," says Hansen.
He adds that a recent comment by Virgin America CEO David Cush that the Pratt & Whitney geared turbofan-powered CSeries was the 'most likely alternative' to the A320neo is representative of "a marginal endorsement, but second place doesn't translate into firm orders".
Bombardier shares have appreciated 27.7% over the last five weeks, notes Hansen. But Raymond James believes "in a healthy margin of safety when selecting entry points" into Bombardier's stock, he says. "The recent share price surge has sufficiently reduced this margin, prompting us to reduce our rating to 'market perform' [from 'outperform'], at least until we see definitive evidence that Bombardier is capitalizing on the sector's recovery."
To date, Bombardier has secured 90 firm orders and 90 options for the 110/130-seat CSeries. A Bombardier spokesman says the airframer remains in advanced discussions "with several key CSeries prospects".