By Allison Lampert and Jeffrey Dastin
MONTREAL/ATLANTA (Reuters) - Bombardier Inc (TO:BBDb) won a major order for its new CSeries passenger jets from Delta Air Lines (N:DAL) on Thursday, potentially boosting the Canadian manufacturer's stature in global markets as it struggles to return to profitability.
The order for 75 CS100 planes, worth an estimated $5.6 billion based on the list price, was the first from a major U.S. airline for the CSeries line, which is years behind schedule and billions of dollars over budget.
Quebec-based Bombardier hopes the deal marks a turning point as it strives to break into the fleets of top airlines and serve the niche market for 100-seat planes that larger rivals Boeing Co (N:BA) and Airbus Group (PA:AIR) have neglected.
Securing the order does not appear to have come cheap for Bombardier, which is waiting for a decision on its request for $1 billion in Canadian government aid.
Industry sources estimated the company may have had to offer discounts as high as 75 percent to reboot the CSeries program with a major order, matching some of the most aggressive deals seen in the aviation market lately.
Jet brokers say commercial jets usually sell for about half of their catalog prices before adjustments for inflation.
Bombardier also said it would book a $500 million "onerous contract" charge in the second quarter related to the Delta order and a separate order from Air Canada (TO:AC) in February.
"We were expecting to have to be a bit more aggressive to relaunch the program, and we have done just that," Bombardier Chief Executive Officer Alain Bellemare told analysts on a conference call.
He predicted the CSeries would be the largest driver of future growth in Bombardier's commercial plane business.
Bombardier shares were up 3.5 percent to C$2.08 on the Toronto Stock Exchange after jumping 13 percent at the open.
'HUGE ENDORSEMENT'
The widely-anticipated deal with Delta included an option to buy an additional 50 CS100 aircraft, Bombardier said. Atlanta-based Delta also has an option to convert a number of its orders into the larger CS300 variant of the aircraft at a later date.
The size of Bombardier's order book for the jet program also will be dramatically increased by the deal.
For its part, Delta will be able to phase out the 50-seat jets that it contracts regional airlines to fly under its Delta Connection brand. The larger CS100 planes burn less fuel per passenger and have room for two cabin classes rather than one, giving the global carrier an opportunity to up-sell customers to business class.
The order is a setback to Boeing, which had planned to sell Delta 20 used Embraer jets traded in by Air Canada as part of an earlier deal, industry sources said. Delta confirmed it no longer plans to induct the E190 into its fleet.
The Delta order, coupled with the Air Canada's commitment from early this year, puts Bombardier's CSeries order book above the company's target for 300 orders before the jet enters commercial service this summer.
"Air Canada is viewed as a shrewd buyer by many in the sector and Delta is seen as an even more astute aircraft buyer, so the two orders are a huge endorsement," said an industry insider who declined to be named.
The order carries CSeries' firm order book beyond 2020. Bombardier Chief Financial Officer John Di Bert said the program remains on track to break even on a free cash flow basis in 2020.
Analysts had feared the CSeries order book could dry up just as the program became profitable.
In the short term, the talks over Canadian government aid to Bombardier have hit an impasse over federal demands for more oversight.
The company, which also manufactures business jets and rail transportation equipment, struck a $1 billion deal with the province of Quebec last October to support the CSeries.
Quebec Premier Philippe Couillard said on Thursday that Ottawa must help Bombardier, arguing that governments should not behave like bankers or investors but as "economic agents."
Ottawa, Quebec and Bombardier have said the government assistance does not violate World Trade Organization rules.
Separately, Bombardier reported an unexpectedly bigger adjusted first-quarter loss of 3 cents per share, compared with the average analyst estimate for a loss of 1 cent per share, according to Thomson Reuters I/B/E/S.
Revenue fell nearly 11 percent to $3.91 billion.
Bellemare said the second quarter is looking a bit better, but more needs to be done to improve the company's cost structure. Bombardier is on track to meet 2016 guidance, he added.
(Additional reporting and writing by Euan Rocha, Sweta Singh and Sayantani Ghosh; Editing by Walker Simon and Paul Simao)