Bombardier acknowledges CSeries cost pressure

Montreal
Source: Flightglobal.com
This story is sourced from Flightglobal.com

(Updated with clarification from Bombardier from paragraph 7)

Bombardier acknowledged increasing pressure on stabilising the cost of the CSeries development programme at $3.4 billion, with one top executive appearing at first to acknowledge a $540 million overrun and then backtracking to the original number.

The conflicting statements occurred in a press conference that immediately followed the landing of the CSeries after a 2.5h, maiden flight from Bombardier’s factory in Mirabel, Canada. When asked about a news report that the cost of the development programme had increased to $3.94 billion from the original estimate of $3.4 billion, Bombardier Commercial Aircraft president Mike Arcamone seemed to confirm the new estimate.

“The programme, as we’ve stated before, is roughly in the $3.94 billion [range] and, yes, we’re trending to not surpass that target,” Arcamone said. Another reporter asked why Bombardier had suddenly increased the cost estimate of the development programme by more than a half-billion dollars. “We never give precise numbers. We also have said we are below about $4 billion,” Arcamone replied. “I’m telling you right now it’s about $3.94 billion.”

Arcamone further explained that the company received more realistic numbers as the development programme matured. “The target I’ve been trying to work out is to stay below the $4 billion, the $3.9 billion number,” Arcamone added. “We look at tooling cost. We look at the parts. We look at all different costs. We try to get a best of an estimate as possible. And then we understand what the real costs are for contracts.”

As the questioning continued, a Bombardier employee passed a note to spokesman Marc Duchesne, who was moderating the press conference. Duchesne then interrupted the conference to correct Arcamone’s statements. “It’s a $3.4 billion US dollars project, maximum,” Duchesne said. “It’s not $3.9 [billion] or close to $4 [billion]. It’s 3.4 billion dollars US.”

Bombardier soon adjourned the press conference, but reporters surrounded Arcamone to understand the conflicting statements. Arcamone agreed with Duchesne’s correction. “I’m saying $3.4 [billion],” he said. But he also noted that the average of the cost estimates has fluctuated as supplier’s prices have become clearer. “There are ups and downs,” Arcamone said. “The average we always have stated for the programme is $3.4 billion. It goes up and it goes down. We’re trying to contain it to that number."

An hour later, Duchesne updated reporters and provided a different reason for the conflicting cost estimates.

The $3.4 billion cost estimate was created when the programme was launched five years ago, but that was before Bombardier adopted a new set of accounting rules based on the International Financial Reporting System (IFRS).

The IFRS standards require Bombardier to include $500 million in amortised interest expense for the development programme within the original cost estimate, Duchesne said. Bombardier has used the $3.9 billion estimate internally for the past two years, but has not revealed it publicly until Arcamone answered the question in the press conference, Duchesne said.

The $500 million increase includes only interest expense and does not account for cost increases caused by the roughly eight month delay of the first CSeries first flight milestone, he added.

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