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Bombardier in talks to tap Indian market with turboprop deal

Wednesday, November 3, 2010

BERTRAND MAROTTE

MONTREAL -- Bombardier Inc.'s turboprop aircraft appears set to wing its way for the first time into an emerging market with a very bright future: India.

The Montreal-based maker of planes and trains has confirmed it is in discussions with Indian discount airline SpiceJet Ltd. on the sale of an unspecified number of Q400 turboprops.

SpiceJet said Tuesday its board of directors has approved the purchase of 15 Q400s valued at about $400-million (U.S.). The order could increase to a total of 30 Q400s worth about $900-million, if options are exercised to buy 15 more of the aircraft.

The transaction, if completed, would mark a breakthrough for Bombardier's popular product in a crucial new high-growth area.

"India is a very significant market for Bombardier. It has a growing regional aviation infrastructure and also holds enormous potential for Bombardier in particular," said spokesman John Arnone.

Bombardier has delivered a "small number" of regional jets to customers in India but, so far, no turboprops, Mr. Arnone said.

The Q400 had held its own through the global recession, while other key Bombardier product lines - business and regional jets - have suffered.

The propeller-driven turboprop looks increasingly appealing to cost-conscious airlines seeking fuel-efficient, environmentally friendly aircraft to operate on short-haul routes for relatively low operating costs.

Large developing countries with double-digit growth rates and burgeoning middle classes with pent-up demand for travel are ideal customers.

"It's good to see Bombardier getting more into developing markets and away from the mature markets [in North America and Europe]," said Richard Aboulafia of Teal Group consultants.

"Bombardier's backlog was getting a little thin, so it's good to get an order like this."

Cameron Doerksen, an analyst with National Bank Financial Inc., said in a research note that if the deal goes through, with deliveries to begin in the second quarter of 2011, it will help secure Bombardier's Q400 production rate through fiscal 2012.

The sale would also represent an important Bombardier foothold in India against its global turboprop rival, Avions de Transport Régional (ATR), he said.

ATR "has enjoyed a dominant position in new sales in India in recent years. Securing a new customer in the high-growth Indian market positions Bombardier well for future orders in the country," Mr. Doerksen wrote.

Turboprops have enjoyed something of a renaissance over the past several years, with up-to-date models offering speed and performance similar to those of jets, but with substantially lower operating costs and fuel burn, according to a recent report by Erkan Pinar and Addison Schonland of AirInsight.

The technologically advanced turboprops are ideally suited to routes in the 1,000-kilometre range but are significantly cheaper to operate than regional jets.

The Q400, for example, reaches near-jet speeds yet costs 30 per cent less to operate than jet equivalents.

There is strong global growth potential in the 60-to-99-seat turboprop segment, but there are upstarts moving into what is essentially a Bombardier-ATR duopoly, the authors point out.

Bombardier (BBD-B)

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