Bombardier is taking a hard look at its regional jet production rate to determine what level of cuts to make in the autumn - and whether it needs to initiate further layoffs - as new CRJ orders prove elusive.
Chief operating officer Guy Hachey also revealed that the flight-test programme for Bombardier's new 100-seat CRJ1000 NextGen regional jet is slightly behind schedule owing to a software glitch experienced in July. He says initial deliveries are likely to be delayed to as late as 30 April 2010, compared with a planned first delivery in January.
In April Bombardier said it would reduce CRJ production in the latter part of the year to adjust for a slowing of new orders and deferral requests, but at that time assumed new orders would be forthcoming.
However, while Bombardier is working on some new CRJ contracts, the company has seen its CRJ backlog diminish.
In August the manufacturer terminated the 15-strong CRJ1000 order of grounded Italian low-fares carrier MyAir. Bombardier also faces uncertainty over a CRJ900 order earmarked for Iraq, and has warned that its business could be severely affected in the short term if it is unable to deliver a balance of nine CRJ900s to the country.
© Martin Stamm/AirSpace
Kuwait Airways is seeking to confiscate the regional jets as compensation from Iraqi Airways and the Iraqi government for destruction of its fleet in the 1990-91 Gulf conflict.
In 2005, an English court ordered Iraqi Airways to pay Kuwait Airways more than C$1 billion ($910 million) in principal and interest, and Kuwait Airways also applied to secure $84 million in legal costs from Iraq. Its efforts to secure these funds recently gained momentum when the Supreme Court of Canada agreed to hear an appeal to have the UK ruling recognised in Canada.
If the case is not resolved in favour of Iraqi Airways and Bombardier, and if the airframer does not succeed in securing new CRJ orders in the near term, "it compounds the issue" and will be incorporated into the firm's decision matrix for CRJ production rates, says Hachey.
The extent of CRJ production cuts in Bombardier's 2010-11 fiscal year will also be affected by the outcome of four or five active CRJ sales campaigns. A workforce reduction of about 4,400 employees is already under way and if Bombardier needs to "go lower than we expected" with CRJ production then there would be additional layoffs, says Hachey, who hopes to have more clarity on the situation by the end of October.
Bombardier Aerospace, which produces commercial and business aircraft, recorded revenues in its second quarter to the end of July of $2.4 billion compared with $2.5 billion a year earlier. Hachey says there are some signs of stabilisation in the business aircraft market.
Earnings before financing income, financing expense and income taxes (EBIT) dropped 37% to $154 million. As of 31 July Bombardier Aerospace's backlog totalled $19.6 billion versus $23.5 billion at 31 January.