In debt and on the brink, Bombardier played its last card by betting everyone on business jets. The aircraft manufacturer has not yet ventured into the woods, but its safety no longer seems threatened and the sky finally seems to be clearing up after some painful years in which its face has profoundly changed.
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A year after the presentation of a new five-year plan to save furniture, the strategy is beginning to bear fruit. In addition to securing US $ 1.3 billion in new orders between January and March, Bombardier generated US $ 173 million in cash-an indicator closely monitored by investors.
“I don’t remember seeing a positive first quarter in this regard in more than 10 years,” ATB Capital analyst Chris Murray said in a phone interview Thursday after presenting the results. The plan is in its infancy, but it is reasonable to believe that the goals will be achieved. »
This is the fourth consecutive quarter that Bombardier has released money, something that hasn’t happened in even a decade. During this time, often, the company was forced to dip its reserves, especially to fund the development of programs such as the C Series and Global 7500. This contributed to the explosion of its long-term debt. It reached about 10 billion US last year.
It is too early to draw conclusions on the plan laid out by Éric Martel, President and Chief Executive Officer of Bombardier since April 2020. Challenges are still approaching the horizon. So far, the move to business jets, which took place following a series of asset sales, looks promising.
I think we have passed the stage where we wonder if the company will survive. We are at the stage of assessing whether he can make his plan.
Chris Murray, financial analyst at ATB Capital
A sign that the situation is improving, the quarters where Bombardier has to draw on its reserves will now be the exception to the rule, according to its president and chief executive officer, Éric Martel, who believes it will provide assurance to investors.
“The way we have reorganized the company, it will be a rarity to see negative quarters [pour les flux de trésorerie], he explained, in a media conference call. The stars are aligned. »
Mr. Martel targets revenues of approximately US $ 7.5 billion by 2025 and ambitions to generate adjusted operating income of US $ 1.5 billion. Last year, the company posted revenue of US $ 6.1 billion and adjusted operating profit of US $ 640 million.
The current context, which hardly anyone expected, is associated with the COVID-19 pandemic. The health crisis has prompted the very rich and wealthiest to turn to expensive private jets to get around.
“The pandemic has made the re -focus [vers les jets d’affaires] is the right one, says Professor Karl Moore of McGill University’s Department of Management. Am I disappointed that the Bombardier is no longer the same size as before? Absolutely. But because of the stakes and heavy debts, they seem to have made the right decision. »
Demand did not shake in the first quarter. While commercial aviation is struggling to recover, business aviation activity grew 23% in the United States and 53% in Europe in the last quarter compared to the same period last year.
Bombardier won about 60 orders in the first three months of the year. Its ratio of new orders to shipments reached 2.5. As of March 31, its backlog was worth US $ 13.5 billion, up 11% from the end of 2021.
There is also a need for second-hand devices. The number of jets sold was only 3.1% of the global fleet at the end of February, according to Jetnet IQ. It boosts Bombardier’s sales and revenue through maintenance and after -sales services, a niche in which the company is betting heavily.
Of the 1.2 billion U.S. turnover made in the first quarter, 364 million came from after -sales services. Revenue for this division has jumped 34% since last year. Worldwide, the aircraft manufacturer operates nine service centers and a new facility is being built in Melbourne, Australia.
The company is in a good position to raise its guidance, which it should do when it releases its second quarter results.
Walter Spracklin, analyst at RBC Capital Markets
Bombardier expects to deliver 120 aircraft this year and generate revenue in excess of US $ 50 million. Several times analysts have asked, the company’s big boss preferred to play it safe by refusing to move forward with a possible uplook revision.
Despite the good results, the Bombardier title took a nose dive on Thursday, losing more than 8% and contributing to the 2.3% decline experienced by the S & P/TSX index.
Challenges Await Bombardier
Despite recent efforts, Bombardier’s long -term debt was US6.6 billion as of March 31. Its debt ratio was 7.1 times adjusted operating income, which is high. The company wants to see it rise to 3.5 around 2025, which means it will need to set aside money to pay off lenders. “It’s still a long -term job,” said Karl Moore, a professor in the Department of Management at McGill University.
Some analysts believe the aircraft manufacturer’s product line is up to date. Competitors such as Gulfstream and Dassault will soon offer new models, which will make the competition more intense. The Challenger 650 platform originated in the late 1970s. Sooner or later, Bombardier would have to invest. “The company can’t afford a new plane,” said Chris Murray of ATB Capital. The Challenger 650 remains a great seller, but will ultimately have to make a decision. »
Russia’s military offensive against Ukraine has not caused any turmoil in the aviation business, but that could quickly change if the fighting escalates. Interest rate hikes mandated by central banks to curb inflation could also cause an economic slowdown. Business aviation is particularly vulnerable to economic turmoil. “We’ll give ourselves time,” Bombardier boss Éric Martel replied, when asked about his forecasts for the year.
The supply chain
With more orders, Bombardier is preparing to deliver more aircraft next year. To avoid production delays, parts must be delivered on time. “We are in mode in case, said Mr. Martel, in supply difficulties with no one. We have [bonifié] our inventory. Our supply chain is very concentrated in North America. The logistical issues in the ports, we experience them probably less than our colleagues. »
- 60,000: Before selling its rail division to Alstom in January 2021, Bombardier had more than 60,000 employees worldwide. Its workforce has dwindled to 13,500 workers.