MONTREAL (Reuters) - Bombardier Inc's (BBDb.TO) $2.5 billion plan to develop a new 110- to 130-seat airliner took a key step forward on Friday when the company said it had obtained approval from its board to seek customers for its proposed CSeries jet.
Bombardier said it wants to get firm orders -- from one or two launch customers that will take 50 to 100 planes -- before formally deciding to go ahead with the project.
"This is the first step toward a launch that we expect to do in 2008," Bombardier Aerospace President Pierre Beaudoin said during a conference call with analysts.
That would bring the aircraft into service by 2013.
Bombardier is still considering doing the wing work for the CSeries at its facility in Belfast, Northern Ireland, where 1,200 to 2,000 jobs would be created, and final assembly of the aircraft at Mirabel in the Canadian province of Quebec, where it could add up to 2,500 employees to its aerospace workforce of 12,000.
The rise by the Canadian dollar to parity with the U.S. dollar and strength of the pound sterling, however, has prompted the Montreal-based company to consider doing final assembly in the United States at what would be a new plant, Beaudoin said.
Bombardier's new facility in Mexico might also have a hand in component manufacturing. Some 600 engineers would be involved in the overall project.
Aside from increasing its development cost to $2.5 billion from the original $2.1 billion, Bombardier said it expects to take on an additional $700 million of capital costs for plant construction and tooling.
Bombardier already has government funding promised for the CSeries from Canada, the province of Quebec and Britain. It would expect to split the overall $3.2 billion cost of the program three ways between itself, governments and suppliers.
The idea that Bombardier might not assemble the plane in Canada did not immediately jeopardize federal backing.
"This government will honor its commitment to partner with Bombardier on the CSeries project," said Deirdra McCracken, spokeswoman for Industry Minister Jim Prentice.
The CSeries would take Bombardier, the world's top train maker and third-largest civil aircraft manufacturer, whose main rival is Brazil's regional aircraft maker Embraer (EMBR3.SA), into markets dominated by Boeing Co (BA.N) and Airbus
"Neither Airbus nor Boeing is seemingly expressing any interest in developing a new narrow-body aircraft to compete with the CSeries before the 2015-2020 timeframe. This may give Bombardier a head start over potential competitors," Cameron Doerksen, an analyst at Versant Partners, wrote in a research note.
The CSeries family targets the lower end of the 100- to 149-seat market segment. Bombardier expects demand to total 5,900 aircraft for an estimated value of $250 billion over the next 20 years. It wants to grab half of that market.
Project leader Gary Scott said that sort of market share means Bombardier could make the jet at a rate of 220 to 230 a year. The list price would range from the low $40 millions to high $40 millions, depending on the seat total, he said.
The company has an agreement with state-owned China Aviation Industry Corp I to build the CSeries fuselage. United Technologies Corp (UTX.N) unit Pratt & Whitney would provide a new engine aimed at reducing fuel consumption by 20 percent.
Bombardier said the CSeries would have a largely composite and aluminum alloy structure, fly-by-wire avionics and be less noisy and polluting than comparable aircraft on the market.
"Together, these advancements will produce up to 20 percent better fuel burn and up to 15 percent improved cash operating costs versus current in-production aircraft of similar size," Beaudoin said in a statement.
Bombardier said airlines around the world have asked for sales proposals on the jet, which would seat five passengers abreast. It provided supporting comments from prospective customers, including Qatar Airways and Lufthansa (LHAG.DE).
International Lease Finance Corp. said it was considering buying the CSeries and becoming a co-launch customer, but it wants to see major airlines from North America, Europe and Asia sign up for orders.
Bombardier is in talks with Northwest Airlines NWA.N about considering the CSeries for its fleet renewal program.
Bombardier's class B shares fell 10 Canadian cents or 1.75 percent to C$5.62 on the Toronto Stock Exchange on Friday.
Additional reporting by Scott Anderson; Editing by Peter Galloway