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Embraer pushes deeper into Bombardier territory with Republic Airways deal

The cabin of an Embraer 175 (E175) jet.

Air Canada

As Bombardier Inc. struggles to meet its target for entry into service of its C Series jet, the latest moves by its biggest customer so far – Republic Airways Holdings Inc. – heighten uncertainty over the program's progress.

Indianapolis, Ind.-based Republic said on Wednesday that it is purchasing 50 of Bombardier rival Embraer SA's E175 regional jets in a deal valued at $2.1-billion (U.S.).

The proposed transaction is part of Republic's new strategy of focusing on its feeder airline business and partnering, rather than directly competing, with the big U.S. carriers.

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The decision to order another batch of Embraer planes after a previous purchase agreement with Embraer reinforces Republic's strategy, further clouding the outlook for the 40 C Series planes Republic has on order.

"Clearly they [Republic] won't be operating the C Series. They made that very clear," said Richard Aboulafia, aerospace consultant with Fairfax, Va.-based Teal Group.

Republic chief executive officer Bryan Bedford said in May that the single-aisle C Series boasting an all-new fuel-saving engine is a game-changer but that it does not fit into the carrier's plans. He did not elaborate on what was ultimately in store for the jet.

The Republic C Series order was originally intended for subsidiary Frontier Airlines Inc. but that carrier was sold last year.

What Republic intends to do with its C Series order looms larger than ever now, as Bombardier tries to make up for lost time in flight testing of the plane after a series of delays.

Republic officials did not respond to requests for comment Wednesday.

Montreal-based Bombardier is also trying to turn around slow sales momentum for the jet, which bumps up against giants Boeing Co. and Airbus SAS in the larger-aircraft space.

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Some analysts and observers have raised concerns over the possibility that Bombardier will need to raise more cash to finance the over-budget C Series program; they have also flagged the likelihood that the plane will not make its entry-into-service deadline in the second half of 2015.

Meanwhile, Brazil's Embraer is having success selling its new E-jets, which are not only eating into Bombardier's regional-jet market share but also threatening to go directly up against the C Series with larger models that also offer significant fuel savings.

"Bombardier's challenge has always been to get carriers to operate a third single-aisle jet [between the regional jet and the full-size airplanes]," Mr. Aboulafia said.

"One of the bigger problems is that Bombardier needs to be doing [C Series sales] deals but it's not really clear they are doing deals."

Bombardier so far has 203 firm orders for the C Series; chief executive officer Pierre Beaudoin has repeatedly stated that the target remains 300 firm orders by the time the plane flies commercially.

Options for Republic include selling its C series production slots – with delivery set to start in 2016 – to someone else, negotiating later slots with Bombardier to further delay a final decision or cancelling and paying Bombardier a penalty.

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RBC Dominion Securities analyst said in an e-mail Wednesday that Republic's latest purchase of Embraer jets is "not at all a reflection on Republic's view on the C Series."

Bombardier Aerospace spokesman Marc Duchesne said the deal with Embraer has "no impact" on the C Series program and the aircraft remains on Republic's order book.

Flight testing is going smoothly and "we're very pleased with the engine fix," he said.

Earlier this year, Bombardier grounded its four test-flight C Series aircraft after a Pratt & Whitney engine failed during ground testing. Testing resumed on Sept. 7.

Also Wednesday, British carrier Flybe Group PLC said it is cancelling orders for 20 E175s and instead entering into a lease agreement to take 24 of Republic's Bombardier Q400 turboprops as Republic winds down its fleet of 31 Q400s.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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