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TORONTO (Reuters) - Bombardier Inc (BBDb.TO) warned on Thursday it will delay putting its new CSeries jet into commercial use until the last half of 2015, a major setback in its plan to challenge Airbus Group NV (AIR.PA) and Boeing Co (BA.N) in the narrow body aircraft market.
A longer-than-expected test phase was the cause for the nine-month delay of the smaller CS100 jet, Bombardier said on Thursday. The news sent shares down more than 6 percent to their lowest level since early May.
The Montreal-based planemaker now sees the larger CS300's entry-into-service about six months after the CS100.
The highly anticipated CSeries is built using lightweight composite materials and other technologies designed to make them burn less fuel and lower operating costs for airlines.
But at least one airline that has signed up as an early customer said it was talking to Bombardier about the consequences of the delay.
"Of course, we are not amused," said Nils Haupt, a spokesman for DT Lufthansa (LHAG.DE), the parent company of launch customer Swiss International Air Lines.
Haupt said compensation is usually part of the contract between airlines and manufacturers in the event of such delays, but did not elaborate on its contract with Bombardier. He said the airline had contingency plans.
"Think about the Dreamliner, think about the A380. We have always seen in the last years, delays in delivery. Of course, we wouldn't hope for that. ... Now it's happened, we have to deal with it," he said. "It is not the end of the world."
The CSeries, which saw its inaugural flight delayed three times before taking off four months ago, was ambitiously scheduled to go into service a year later, though analysts had expected entry into service to be pushed back to early 2015.
"It is no surprise that the EIS date has been pushed to the right," said Cameron Doerksen, an analyst with National Bank Financial, in a client note.
"However, the new date is even later than our expectation and certainly beyond the consensus view that we think was for EIS in Q1 2015."
Doerksen, who did not anticipate order cancellations, speculated the delay could add several hundred million dollars to the C$3.4 billion program due to engineering and testing.
Separately, Bombardier announced a deal worth up to $2 billion on Thursday with Saudi Gulf Airlines to buy 16 CSeries jets with options for 10 more.
The delay is the latest setback for the world's fourth largest planemaker's ambitious plan to dominate the growing 100- to 149-seat market, pitting itself against the smaller aircraft made by industry giants, Boeing and Airbus.
The planemaker says the CSeries will have a 15 percent cash operating cost advantage, 20 percent fuel burn advantage and will be significantly quieter than competing single-aisle jets.
The CSeries' projected improvements prompted Airbus and Boeing to launch in recent years new versions of their older single-aisle models, with similar new, fuel-efficient engines.
Bombardier had previously said flight tests were going according to plan but would provide an update on the aircraft program's entry-into-service schedule early this year.
Bombardier shares were down 6.6 percent to C$4.22 in mid- morning trading on the Toronto Stock Exchange.
Additional reporting by Euan Rocha in Toronto and Ashutosh Pandey in Bangalore; Editing by Sofina Mirza-Reid and Stephen Powell