April 9, 2013 / 7:20 PM / 6 years ago

Porter Airlines expansion plan could hit hurdles

TORONTO (Reuters) - Canadian regional carrier Porter Airlines is expected to announce an order for 12 of Bombardier Inc’s (BBDb.TO) new CSeries jets on Wednesday, a likely challenge to flight restrictions at its Toronto Island airport base.

Porter Airline promotional items and souvenirs are seen during a welcoming ceremony at Dulles International Airport in Virginia April 16, 2012. REUTERS/Gary Cameron

The privately held airline, which says it will announce “expansion plans” at a morning press conference, could create a third cross-country carrier with the deal, ratcheting up competition for Canada’s No. 1 and No. 2 airlines, Air Canada ACb.TO and WestJet Airlines Ltd (WJA.TO).

Buying CSeries jets would give Porter the opportunity for longer flights and extra routes. But it raises questions about its ability to operate the CSeries from Billy Bishop Toronto City Airport, a short ferry ride from the city’s core.

Under an agreement between the city of Toronto, the federal government and the Toronto Harbour Commission, almost no jet-powered aircraft, which would include the CSeries, may use the Island Airport. (here)

Porter Airlines did not respond to requests for comment on a CSeries order, which The Wall Street Journal reported on Tuesday, citing unnamed sources. Bombardier spokesman Marc Duchesne said the Montreal-based company would not comment on “industry speculation.”

But a long-term Porter employee said a mockup of the jet was being assembled in a Porter hangar, and a CSeries announcement was highly likely.

Bombardier in December announced a letter of intent with an “unidentified customer” for 12 CSeries worth $870 million at list prices, with options for another 18 aircraft that would swell the deal value to $2.08 billion.

“It will double the size of the company, peoplewise, and just opens up the continental North American markets,” the Porter source, who was not authorized to speak to the media and who asked not to be named, said of the order.

Plane delivery is unlikely before 2017, the source added.

Privately held Porter turned a small profit in fiscal 2012, triggering profit sharing, the source said.

There is speculation that Porter may lobby to have the airport’s rules changed, arguing that the “noise footprint” from the CSeries is not dissimilar to that of the 70-seat Q400 turboprop planes it currently flies.

Bombardier and engine manufacturer Pratt & Whitney promise a “low noise footprint and just 70 decibels approaching the airport,” wrote Scott Hamilton, an aviation analyst with Leeham Co, noting that the airport is “highly noise sensitive.”

Seven-year-old Porter currently flies a fleet of 26 Q400 propeller planes to more than a dozen cities in eastern Canada and the United States, with routes restricted by the plane’s range of approximately 1,000 miles.

The CS100 has a range of some 3,066 miles, but that distance can be sharply reduced by runway length.

“We suspect that any move to open up the (island airport) to jets will be met with fierce opposition, so there is no guarantee that the airline will be allowed to operate the CS100 from its main hub,” said National Bank Financial analyst Cameron Doerksen in a note.

If Porter plans to fly the CSeries from another airport that does not connect to its Toronto Island base, its advantages over Air Canada and WestJet would be “limited at best,” he added.

“Indeed, the history of airlines in Canada attempting to grow from regional players into national players is not positive,” he wrote.

Porter Chief Executive Robert Deluce has hinted in the past that his airline could expand into Western Canada, a strategy that would invite a tough competitive response from Air Canada and WestJet, Doerksen wrote.

The island airport’s runways could pose a further problem. While the longest runway is approximately 4,000 feet, matching the CSeries requirement for takeoff, the jet requires 4,400 feet for landing, Bombardier said.

That means the airport would require a “significant rework” for the planes to operate, RBC Capital Markets analyst Walter Spracklin said in a note.

“Porter could also be looking to deploy the CSeries from alternate airports, including Montreal, to destinations in the U.S. and significantly expand its footprint on those routes,” he wrote.

Bombardier, the world’s fourth-largest plane maker, delayed the first flight of its CSeries by six months to the end of June after unspecified supplier delays.

Five years in development, the $3.4 billion jet is scheduled to enter service in mid-2014, and Bombardier wants 300 firm orders by then. It had 148 firm orders as of December 31.

A Porter order would make the airline the first Canadian CSeries customer. Seven companies have firm CSeries orders, not including a Russian deal for 32 CS300 jets that requires shareholder approval.

Shares of Bombardier gained 2 percent to close at C$4.08 on the Toronto Stock Exchange on Tuesday.

Reporting By Susan Taylor; Editing by Leslie Adler and Janet Guttsman

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