Those CSeries Numbers

by Graham Warwick
Feb 13, 2014

You can be forgiven for getting confused when Bombardier starts talking numbers on CSeries development costs - but the figure they want you to remember is $4.4 billion. That is the cost to develop the CS100 and CS300 under the new schedule, which extends development testing into 2016.

How much of an increase that is over the previous development cost estimate is harder to work out. On paper it looks like just over $1 billion, but in reality it is probably more like $500 million. Here's why.

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CSeries FTV2 at Mirabel (Photos taken Feb. 12 by Aviation Week's John Croft)

Since 2007, Bombardier has been saying that development of the CSeries would cost $3.4 billion. But that was calculated using older, so-called "non-GAAP" accounting rules. The new total of $4.4 billion is calculated using today's IFRS rules and the two figures cannot be directly compared, the company says.

But at the press confernece after the CSeries' first flight in September last year, Bombardier Commercial Aircraft president Mike Arcamone caused a bit of a kerfuffle when he talked of the development cost being $3.9 billion, not $3.4 billion. The later explanation was that IFRS rules required the company to include the cost of borrowing money in the total development bill - hence the extra $500 million.

Now Bombardier CEO Pierre Beaudoin says they tried but could not come up with an equivalent "IFRS-standard" figure for the original development cost, before the 12-month-plus delay, to enable an apples-for-apples comparison. But if we use the "IFRS-ish" $3.9 billion figure from last September then we end up with a "real" development cost increase of around $500 million.

That's about half what some analysts forecast the delay would cost Bombardier, but remember - I am no accountant!

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FTV4 (background) is powered up

What is confusing to non-analysts like me is the way the company accounts for its costs. What we call development cost, Bombardier calls program tooling - because it is a non-recurring expense, like buying tooling, that is amortized over production of the aircraft on a per-unit based. Program tooling has two components: development spending and capitalized borrowing costs.

By the end of 2013, Bombardier program tooling cost for the CSeries was $3.31 billion. Of that about $300 million was capitalized borrowing costs. From the beginning of this year to early 2016, when the CS300 is to be certificated and CSeries development completed, Bombardier will spend another $750 million on development and capitalize another $300 million in borrowing - for a total of $1.05 billion.

Add that to the $3.31 billion and you get the new cost to develop the CSeries, which Bombardier rounds up to $4.4 billion for those of us who count of their fingers.

Here's a chart from the company's 2013 annual results that shows how much it has spent so far not only developing CSeries, but the Learjet 70/75, Learjet 85, Challenger 350 and Global Express 7000/8000 business jets. And this is a company that essentially halted all product development in the early 2000s to save money.

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Chart: Bombardier

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