MONTREAL — Bombardier shares have retreated from a seven-week run-up after analysts raised concerns about a lack of new orders for its new, fuel-efficient CSeries plane.
The Montreal-based company’s stock (TSX:BBD.B) had gained 29 per cent since early December but closed down 15 cents, or 2.56 per cent, at $5.70 in trading Friday on volume of 12.2 million shares.
Steve Hansen of Raymond James downgraded the stock to market perform with a $6.25 target price.
Robust global airline traffic and recent industry orders have signalled a recovery in commercial aerospace spending. But Hansen said Virgin America’s decision to choose the Airbus A320 neo after considering the CSeries was a setback.
“We are increasingly mindful of the neo’s rapid adoption and the potential impact on the CSeries business case,” he wrote in a report.
Meanwhile, Bombardier’s recent share price surge had reduced the “healthy margin of safety” for buying the company’s stock, Hansen said.
The updated Airbus A320 is a larger plane than the CSeries and gives customers the option of using a variant of the Pratt & Whitney engine that will also power the Bombardier aircraft.
So far, Bombardier has received 90 firm orders and 90 options for the CSeries from Germany’s Lufthansa, Ireland’s Lease Corporation International and U.S.-based Republic Airways.
Bombardier said it has met with scores of potential customers and has forecast that it will build half of the 6,700 jets of this size that will be delivered over the next 20 years.
Among those looking at the plane is American Airlines. Chief executive Gerard Arpey said the CSeries is “definitely worth considering” as the carrier assesses growth plans over the next decade.
Delta Airlines, the world’s largest airline, last month invited several aircraft manufacturers to submit requests for proposals as its looks to renew its fleet by purchasing up to 400 narrow-body aircraft.
Delta plans to purchase 100 to 200 such aircraft with options for 200 more. It has indicated an interest in considering large, medium and small planes, with deliveries beginning as early as 2013.
Benoit Poirier of Desjardins Securities said the order could be split among several companies with Bombardier likely to get its share.
Turan Quettawala of Scotia Capital describes Bombardier as his top pick for 2011, saying it is cheaper than its railway and aerospace peers.
However, the analyst said Bombardier shares may face a “near-term correction” especially if the order flow is dry.
Bombardier has said it expects to eventually receive more orders for the CSeries, but still has time to build up its order book since deliveries aren’t slated to begin until late in 2013.
Earlier this week, Bombardier outlined the impact of accounting changes on its results. While the company’s net income and equity value will change, the business fundamentals remain the same, it said.
Bombardier also announced plans to move up its fiscal year-end by one month to Dec. 31. The move would enable a better comparison with industry peers, added Walter Spracklin of RBC Capital Markets.