Bombardier Cancels Learjet Order: Another Sign of Challenging Conditions in the Business Jet Market

The cancellation of a firm order for 25 Learjet 60XR aircraft from Europe’s Jet Republic is another sign of challenging conditions in the business jet market and may put Bombardier Inc.’s (BDARF.PK) Learjet production schedule at risk.

Jet Republic had placed an order for 110 of the aircraft, of which 85 were conditional. First delivery was scheduled for October 2009. The fractional jet ownership company is “technically insolvent” and has ceased operations.

The firm portion of the order represented 6% of Bombardier’s total business jet backlog, according to Desjardins Securities analyst Benoit Poirier’s calculations. However, he told clients that the order probably represented less in dollar terms since the lower end Learjet have some of the lowest list prices among Bombardier’s business jets.

The analyst highlighted the risk associated with two other large bizjet orders places in the past two years by XOJET (20 firm orders for the Challenger 300) and VistaJet (35 firm orders, including 24 for Learjets). He said both run similar operations to Jet Republic, but given that they are private companies, it is difficult to assess their performance and to determine how secure their orders are.

As a result of the termination of the Jet Republic order, Mr. Poirier believes Bombardier’s Learjet production schedule might be in jeopardy. The company expects bizjet deliveries to decline by 25% in fiscal 2010, but they analyst expects it will have to reduce its bizjet production further, by 30% in 2010 and 15% in fiscal 2011.

CIBC World Markets analyst Chris Murray also believes further reductions are necessary, particularly in the small cabin Learjet segment. He forecasts total deliveries will be down 32% in fiscal 2010 and an additional 15% in 2011.

“Fractional share operators have been fairing poorly in the current environment and Jet Republic’s failure does not come as a complete surprise,” Mr. Murray said in research note.

So while the cancellation is a negative, the analyst believes Bombardier retains a strong backlog that should allow the company to manage through this current downturn.

Comments

[AirBoss:]

The beatings will stop when morale improves...

Aug 21 08:07 AM