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Bombardier Flies High

By Chad Fraser on May 30, 2013

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Canada’s Bombardier Inc. (TSX: BBD.B) continues to lead the market for business jets. In 2012, the company delivered 179 planes designed for shuttling corporate execs. That was down slightly from 182 in 2011 but still well ahead of rival Gulfstream, a subsidiary of General Dynamics (NYSE: GD), with 94 planes.

The U.S. accounted for 49.7% of all business jets delivered last year, while 20.8% went to Europe, followed by the Asia-Pacific region (11.8%), Latin America (11.6%) and the Middle East and Africa (6.1%). 

The business jet market has struggled as businesses continue to hang on to their cash in response to the uncertain global economy. Overall deliveries declined by 3.4% in 2012. Total airplane shipments, including single piston and turboprop models, rose 0.6%, but the total value of those planes declined slightly, to $18.9 billion.

Still, sales look set to gain altitude. According to recent figures from aviation advisory firm Zenith Jet, deliveries will rise from a forecast 757 planes in 2013 to 1,214 in 2016. Total deliveries in the next 10 years are estimated at $253 billion at current prices. Zenith Jet sees Cessna Aircraft Company as the leader in the number of planes delivered, but Bombardier will take home the biggest slice of that revenue, at 30.3%. 

“The best bizjet investment play is Bombardier,” Investing Daily managing director John Persinos wrote in a May 2012 article in our Personal Finance newsletter. “This Ca­nadian-based plane maker will con­tinue to dominate the bizjet market for years to come.”

China continues to be a major growth area for the industry. According to figures from consulting firm Asian Sky Group, 336 business jets were based in Greater China at the end of 2012, up 40% from 96 in 2011. 

“There is still great potential in China—absolutely—and the growth rate is the highest for Asia,” said Asian Sky Group general manager Jeff Lowe in an April 9 Flightglobal.com article. “China is a large-cabin-and-up market, where Gulfstream and Bombardier are the dominant players.”

Growing in the Passenger Jet Market 

Not satisfied with its large slice of the corporate jet business, Bombardier is expanding in the larger airliner space with its new CSeries plane, which seats 148 passengers. The company has also developed a model that will hold 160.

That will put it in more direct competition with industry giants Boeing (NYSE: BA) and Airbus. However, the company is confident it can compete. According to a March 20 CNN article, the CSeries is 30% cheaper than similar models offered by the competition, and Bombardier claims that it uses 20% less fuel and is 25% cheaper to maintain.

In a May 9 press release announcing the company’s latest quarterly results, it announced that the CSeries will start test flights in June, after Bombardier was forced to delay them in November due to supplier issues. The stock has headed skyward since, rising nearly 15%, from $4.23 on May 8 to today’s price of $4.85.

“We view management’s confidence in its target at such a late stage in the safety-of-flight testing as a good sign,” National Bank Financial analyst Cameron Doerksen wrote in a report quoted in a May 9 CBC article.

As of the end of March, Bombardier had orders for 388 CSeries planes, including firm commitments for 145.

Canadian Order Would Give the CSeries a Big Lift at Home

That tally didn’t include an $870-million order for 12 CSeries jets from Canada’s Porter Airlines, plus an option to add 18 more, which would raise the deal’s value to $2.1 billion. The company announced that agreement on April 10.

However, the purchase is contingent on government officials agreeing to extend the runway at Toronto’s downtown airport to accommodate these planes. Porter’s fleet currently consists of Bombardier Q400 turboprop aircraft, a model that’s considered state of the art for smaller passenger planes but holds only 70 to 80 passengers.

This plan faces resistance from local residents due to concerns about increased noise from the airport, which is near the city’s downtown core—though Porter CEO Robert Deluce has claimed that the CSeries is just as quiet as the Q400. Toronto city council has voted to send the proposal to city staff for further study. If it goes through, the new planes would allow Porter to fly further afield, to destinations including Los Angeles, Florida and the Caribbean.

Steady Results in the Latest Quarter 

Bombardier operates through two divisions: Aerospace, which accounted for 52% of its 2012 sales and 58% of earnings; and Transportation, which supplied the remaining 48% of revenue and 42% of profits. This business is a market leader in the passenger rail sector, churning out railcars for public transit systems around the world.

In the first quarter, Bombardier’s revenue rose 24.6%, to $4.3 billion from $3.5 billion a year ago. Net income slipped from $155 million, or $0.08 a share, to $148 million, or $0.08. Excluding one-time items, earnings rose to $156 million, or $0.08 a share, from $150 million, or $0.08.

The transportation division’s revenue edged up to $2.1 billion from a year ago. At the aerospace division, revenue rose to $2.3 billion from $1.5 billion. The company delivered 53 airplanes in the latest quarter, compared with 37 in the first quarter of 2012.

The company also has a total order backlog of $63 billion. That’s down slightly from the end of 2012, but it’s still nearly four times the $16.8 billion in revenue that Bombardier reported in 2012.

Bombardier’s p/e ratio compares favorably to other aerospace stocks, at 16.0. As well, the company pays dividends at a rate of $0.03 (Canadian) per quarter. At a $0.12 annual rate, the stock yields 2.09%.

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  1. avatar
    Greg Andrews Reply May 31, 2013 at 4:28 PM EST

    Having worked for north of 25 years in private aviation, and for some very high end turbine names, don’t be fooled be the Bombardier numbers. In the recession of the early 2000’s we watched Bombardier do serious house cleaning, and sometimes, what appeared haircut taking to push out units, versus Gulfstream, who tended to avoid haircuts by doing less deals that made sense.

    Let’s see the gross versus net numbers, and then we’ll know who’s the big gun standing!