News

Rumors about Bombardier have been swirling for some time as the company sold off assets and announced a strategic review of its remaining businesses. Today, the dust is finally beginning to settle. Bombardier announced that it is selling it rail business to Alstom, enabling a substantial paydown of its heavy debt-load and indicated that the company will now focus exclusivity on business jets.

Potential customers now have more clarity on the health of the company’s balance sheet and its long-term commitment to business jets.  But, how does Bombardier stack up as a pure-play business jet company?  Our assessment is that it will continue to be a formidable competitor in the business aircraft market.

Analysis

Bombardier’s business jet offerings include brand new industry-leading products at the high end of the market with the Global 7500, 6500 and 5500 family, a well-established market leadership position in the mid and super-mid-sized market with the Challenger family, and the repositioning of the Learjet 75 Liberty as the best value in the light jet segment.  Bombardier is the industry leader in deliveries and is well positioned for future growth.

Bombardier has successfully refreshed their large cabin portfolio (i.e., the Global 7500, 6500 and 5500).  This segment of the market is the fastest growing, highest margin, and mostresistant to economic downcycles. Customers for these aircraft are not as impacted by business cycles, since they are in the top 1% of wealthy individuals or Fortune 500 corporations.  With Bombardier’s acquisition and integration of the Triumph wing operations behind them (and seemingly done well), the recently certified Global 7500 has moved into volume production, with a significant ramp-up expected in 2020.  This will help the financial as the Global 7500 is a high margin aircraft.  The entry into service of the Global 6500 and 5500 will reinforce a strong position at the high end of the market.

Bombardier’s Challenger also remain the market leaders in their segments and the company has shown with its recent upgrades, that it will aggressively protect its market share in this mid and super mid-size space. These best sellers continue to lead their market segments.

The Learjet family has been repositioned with the Learjet 75 Liberty with an upgraded value proposition and aggressive pricing, as Bombardier finds new ways to breathe new life into the iconic platform. Bombardier is the only OEM offering aircraft from light to intercontinental business jets, essentially placing Bombardier into the same role that and Boeing have in commercial aviation – a model for virtually every application.

Bombardier has also quietly building their services business – with major expansions in Singapore, and Florida.  With one of the largest installed fleets in the industry, bringing service home to the OEM is an important revenue stream. Given that services revenue tends to be higher-margin and less impacted by economic cycles, this bodes well for Bombardier’s future. Vertical integration of this function means keeping more of the cashflow in-house while at the same time giving its demanding customers the boutique-level support they expect.

Despite the corporate financial issues, Bombardier continued to invest in the business jet division, both in the new Global products and the aftermarket.  Those investments are now paying off, with the new Global products moving from the cash flow negative development phase into the production phase that generates positive cash flow.  With a strong portfolio of products and an emphasis on increasing factory service revenues, the company is well positioned for future success.  Bombardier has wisely kept this high-performance division as the core for its turnaround.

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