MONTREAL, Aug 13 (Reuters) - The grounding of Bombardier's (Toronto:
BBDb.TO
-
News) popular
Learjet 45 because of a potential problem with the business jet's tail
will more likely create red faces at the Canadian train and plane
maker than increase the flow of red ink, analysts said on Wednesday.
"It's more of an embarrassment
than a serious problem," said Bill Dane, business aircraft specialist
with consulting firm Forecast International DMS.
The market reacted placidly to the news as Bombardier stock ended
up 2 Canadian cents at C$4.95 on the Toronto Stock Exchange (News
-
Websites) on Wednesday on volume 4.9 million shares, slightly
above its average trading volume.
Bombardier has delivered 230 Learjet 45s over the last five years,
but the U.S. Federal Aviation Agency grounded them because of a
potential defect in a tail screw that could cause pilots to lose
control of the plane.
Bombardier expects it will take one or two weeks to have a new
screw set ready for certification, and hopes the aviation authority
will then approve it quickly.
"At least they discovered the problem before any plane crashed or
somebody got killed. If they can play it down from a public relations
point of view and implement these upgrades, then they should be able
to put this behind them," Dane said.
A Bombardier spokesman refused to give an estimate of how much the
company is expecting to pay to fix the problem, but analysts see the
cost as minor.
"I don't think that there is a significant amount of costs
associated with it, I guess it's more the perception that may be more
negative to the company longer term," said Cameron Doerksen, aviation
analyst for Dlouhy Merchant in Montreal.
Bombardier has a leading 25 percent share of the business jet
market, slightly ahead of Gulfstream, a unit of defense contractor
General Dynamics Corp (NYSE:GD
- News), according the
most recent study by aviation consulting firm Teal Group.
Other rivals are Cessna, unit of U.S. conglomerate Textron
Inc.(NYSE:TXT -
News), France's
Dassault Aviation (Paris:AVMD.PA
- News) and U.S.
defense group Raytheon (NYSE:RTN
- News).
Bombardier asked clients to use chartered jets while the planes are
grounded and agreed to pay part of the rental costs. A rough estimate
would put the maximum rental costs at about $1.2 million per week for
the first two weeks, and twice that amount in the subsequent weeks.
A Bombardier spokesman said the real rental costs will "certainly
not (be of) that kind of magnitude."
SPEED COUNTS
Bombardier will also likely have to pay for replacement of the
screws, and could face lawsuits from customers for losses incurred.
"It's is imperative to get the planes off the ground and flying
again. There are lot of people losing money, especially the folks who
provide fractional services, most notably Bombardier's own Flexjet,"
said Richard Aboulafia, analyst for the Teal Group.
Bombardier said its Flexjet program, which allows clients to share
the use of a business aircraft, had only 29 Learjet 45s in its fleet
of 100 aircraft, so the grounded planes will be easily replaced with
other models.
Bombardier bought Learjet in 1990, just in time for a decade of
strong growth that saw the business jet market triple in value, but
the downturn that followed has dried up orders.
Bombardier, whose share price has fallen by 80 percent over the
past two years, is also facing concerns over its regional jet
deliveries to U.S. airlines and their affiliates, as the Sept. 11
attacks aggravated the financial distress of an already fragile
industry.
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