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Bombardier, Commercial Airliners, Other Aviation Issues, Regional Aircraft, Regional Airlines, UPDATES

MAYDAY ! As if the situation was not bad enough at Bombardier following the Paris Air Show, where NO new orders for any of it’s 3 commercial aircraft were announced, and this week, it’s stock (TSX:BBD.B) hit a 22 year low at $C1.90 per share, down 49.3% in the past 12 months, and down 61.3% in the past 5 years ! another 49% drop and its a “penny stock” (<$C1.00). Meanwhile market capitalization of the company is now at an extremely low $C 4.3 billion for a company with $US 20+ billion in revenue. The latest bad news was that there is a "review" and a 18+ month delay in the new Global G7000/G8000 business jet programs. The Global brand is Bombardier's "cash cow", it is the light at the end of the tunnel today, as it provides the best margins, 60% of business jet revenue, 43% of Bombardier aerospace revenue with just 27% of total aircraft deliveries, trouble there means bigger troubles for the whole company, especially now. The ultra-long range business jet segment is weakening all over the world, new competitors are coming in like the new Gulfstream G500/G600's and Dassault's 8X and 5X, while the current Global G5000/G6000's badly need a "revamp" (e.g. Challenger 300 to 350 and 605 to 650), but everything is on the back burner these days because of the CSeries, a program that has changed the company for the worst, and a program that may yet destroy the company directly or indirectly in the end. Yet they want to stretch it into a 160 seater (CS500) and go toe to toe with Airbus and Boeing in the largest and most contested and price discounted aviation market segment today, the single aisle narrow-body, which will be joined by the Comac C919 and Irkut MC-21 in the next 5 years ? oh boy !

I thought things could not get worst for Bombardier after the Paris Air Show last month, but they have, as investors have seen the share price (TSX:BBD.B) hit a 22 year low last week of $C 1.84 and as of yesterday it closed at $C 1.90 per share as investors sell and lose confidence in the company whose market capitalization is now a mere $C 4.3 billion, that is what the market values this 74,000 employee, $20.11 billion in annual revenue company ! NOT good.

CHECK OUT PREVIOUS ARTICLES ON BOMBARDIER

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BOM-Swiss CS100 C-GWXZ (12)(Flt) ZRH (ADH)(46)-M

The yet to be certified CSeries Program has cost Bombardier $US 5.3 billion (so far), and around $C 6.8 billion in market capitalization over the past 5 years through a 61.3% slide in the company’s stock, mostly due to the CSeries cost over runs and very poor sales to-date, surely shareholders today wish the CSeries never happened ! as it will take years to break-even (if at all), and it has ‘distracted’ the company from updating the CRJ and Global brands while Embraer and Gulfstream moved forward on product development with their E2’s and G500/G600’s.

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As I mentioned in my blog of June 20, 2015, Bombardier claimed it was “absolutely satisfied” after the show, well investors are NOT satisfied or should they be. The stock has dropped 49.3% in the past 12 months, and 61.3% in the past 5 years and investors are seriously worried if Bombardier can ever turn it around at the world’s only plane and train manufacturer.

This latest sell off is no surprise to most industry observers, Bombardier has been struggling for some time and even though it finally had a public debut for its new CSeries commercial jets (CS100 and CS300) at the Paris Air Show, it came home with no new orders for any of its 3 commercial aircraft (CSeries, Q400 and the CRJ brands).

Since January 21, 2014 Bombardier has announced 4 rounds of lay-offs of 6,950 employees (roughly 20% of aerospace employees), and highly skilled ones at that, as it restructures its aerospace business, which is struggling with the $US 5.3 billion CSeries program that may ultimately destroy the company altogether.

This latest sell off is directly connected to the statement by news that the new high end $US 75 million Global 7000 and the $US 71 million Global 8000 programs in development are being “reviewed”, and are right now delayed 18-24 months, and probably even longer, as neither aircraft has flown and they do have to deal with new GE Passport engines, a new high-speed thin wing and a fly by wire, where things can get delayed further.

As this is going on, Gulfstream is moving full speed ahead with its new $US 44 million G500 and $US 55 million G600 competitors to the Bombardier G5000/G6000’s which have yet to come out with any changes against the new and real threat from Gulfstream, Bombardier has been so focused on the CSeries and is not ready for the new challenges to its Global brand, and its coming fast with the $US 58 million Dassault 8X as well. It looks like Bombardier will lose the ultra long range segment to Gulfstream in the next 24 months with its line up of the G650, G650ER, G500 and G600, which is a better line up than the Global G5000/G6000 line up today.

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BOM-G500BOM-Dassault_Falcon8X3-e1423297613855

The $US 44 million, 5,000 nm range Gulfstream G500 (top LEFT) and the $US 58 million, 6,450nm, 2.58 meter wide cabin Dassault 8X (top Right) are the latest entries to take on the Bombardier Global brand (G5000 and G6000) head on, unfortunately this market is seeing a softening in demand, so margins that used to be very high will come down, just as competition heats up. The economic slow down and anti-corruption drive in China, coupled to Russia’s economic woes, Europe’s stagnant economy and oil producing nations economic problems due to low oil prices, all contributes to hard times ahead. For Bombardier any slowdown in its “cash cow” Global brand is a disaster, the brand contributed $US 4.5 billion in revenue (60% of business jet division revenue, 43% of revenue for the whole aerospace division, a majority of the free cash flow on only 27% of total aircraft deliveries).

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It must be pointed out that the current Global aircraft produced, the $US 52 million G5000 and the $US 62 million G6000 generated $US 4.5 billion (at list price, as till now little discounting was undertaken on the Globals, but that has changed now) in revenue in 2014 for Bombardier, 22% of Bombardier’s total revenue.

BOM-G6000

The Global brand at Bombardier is the “cash cow” for the aerospace division with 80 deliveries in 2014, but now softening demand is forcing a reduction to only 55 units in 2015, reducing revenue from $US 4.5 billion to $US 2.7 billion in much more competitive environment than the past 10+ years. With delays in the new $US 75 million G7000 and $US 71 million G8000, the current G5000/G6000 line will suffer reduced demand and margin, creating more headaches for Bombardier, as EIS of CS100 and CS300 is not until 2H/2016, and free cashflow will be negative for sometime.

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With G5000 and G6000 production going from 80 units in 2014 to 55 in 2016, it means the Global’s annual revenue will go from $US 4.5 billion to about $US 2.7 billion (with price discounting), a new loss in revenue of $US 1.8 billion per year, at a time Bombardier needs more revenue to make up for the costs of the CS100 and CS300 airlines which will not see 1st entry into service until July 2016 (CS100) and December 2016 (CS300) at best.

The company is also thinking of a stretched 160 seat CS500 (Bombardier is a master of stretching aircraft, they took the Challenger business jet from 10 seats and made the CRJ-700, CRJ-900 and the 100+ seat CRJ-1000, the same with the 37 seat DHC-8-100 which has been stretched into the 78-84 seat Q400). To go into the B737Max and A320neo market would be bold, but it would be a disaster to try and compete with the duopoly of Airbus and Boeing, they will kill you on price, service and Bombardier will not make a dime selling aircraft at the prices that some of those aircraft go for today ($US 45+/- million), it would be the camel that broke Bombardier’s back, and they would join other commercial jet manufacturers that failed (e.g. Lockheed, Convair, Fokker, BAe, McDonnel Douglas, Dassault, Vickers, etc.).

The current commercial side is hurting as well, as of March, 2015 there was a backlog of only 90 CRJ’s (51 x CRJ900’s, 30 CRJ-1000’s and 9 x CRJ-700’s) which at 5 units per month equates to roughly 18 months of production or end of 2016, while the Q400 has a backlog of 52 units which at 2 units per month equates to 26 months of production, roughly 3Q/2017. Seems that the Q400 has lost the battle to the ATR-72-600 while the CRJ-900’s so popular with the scope clause limited US regionals is the 2nd choice to the Embraer E1-175’s and come the E2’s in a few years time, the CRJ will be obsolete and struggle with any new orders from 2018 onwards, anyone who has flown in a Embraer and CRJ knows what I am talking about.

The signs of BIG trouble at the business division were there for some time, bill ratio (orders to deliveries) was 0.62 in 2014 (6 orders for each 10 deliveries) and that is getting worst as 1st Quarter 2015, bill ratio was down to 0.42 (4 orders for each 10 deliveries), situation at the business jet division is getting bad, once the pride and joy of Bombardier with 1,940 deliveries in the past 10 years, with 204 last year when Bombardier went overboard with 204 deliveries (only 126 orders), many had to be discounted, especially the Learjet brand. The 1st quarter showed only 19 new orders for business jets ! the market is getting soft and it is very bad news for Bombardier, therefore the stock is hitting new lows !

The Global’s (as pointed out in my blog of May 5, 2015) represented 43% of the revenue and a vast majority of any profit as they have generated high margins – till now for the Aerospace division ($US 10.49 billion in revenue in 2014), and it is the “cash cow” for the whole division, the 80 Globals delivered last year (27% of ALL aircraft deliveries) kept the Aerospace division alive. The business jet division generated $US 7.56 billion in revenue (72% of the aerospace revenue) and Bombardier’s future is in the Global brand as the CSeries is not expected to breakeven until at least 500 deliveries or 2022 at the earliest.

The backlog in the business jet side is $US 23.4 billion, so based on 2014 numbers, that is around 3.0 years of production, but that backlog includes some G7000/G8000’s that may or may not happen, a lot depends on what happens to the CSeries in the next 12 months-it is do or die time at Bombardier, and everyone knows it, but no-one speaks about it, but if things do not change, the stock (TSX:BBD.B) will be come a penny stock (? $C1.00 a share), it needs to drop another 47% to get there, it did loose 49.3% in the past 12 months !

As discussed many times the current order book of 243 CSeries is at best 130 and then the 60 orders from lessors Lease Corporation and Macquarie AirFinance have to be questionable, as lessors want aircraft that are marketable, hold their residual values and have a large customer base, the CSeries has no of that and it would be a very risky acquisition at this time and the new Bombardier sales executives that come from the leasing business know this very well. The recent appointment of Latvia’s government owned airBaltic as the launch customer for the CS300, clearly shows that the order book is weak, few Tier I airlines (Lufthansa, Korean Air) rest are small airlines with questionable futures.

So with the CSeries still not showing signs of market acceptance, the CRJ and Q400 showing their weak market acceptance and now that the Global brand facing cut backs in current production, a softening in demand and delays in the new G7000/G8000 programs while facing an onslaught of new competition from Gulfstream’s two new models and Dassault’s 8X entry, while the Learjet line has reached its declining phase of its product life cycle, the only bright spot left is the Challenger line, as good as it is, it will not keep Bombardier in the black.

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crj-700spicejet-2

The CRJ and Q400 brands are in their declining product life cycle stage, few new customers now, most orders are from existing customers as both models are getting their buts kicked by their respective competitors Embraer and ATR, and price discounting is huge to make the deals, come the E2’s in a few years and the CRJ is pretty much done, while the Q400 is niche aircraft, designed for 300nm to 400nm sectors, it is too expensive on short runs (<300nm) where the ATR-72 is better and too expensive on longer sectors (>400nm), where the regional jets prevail, this was the design, keep it between the DHC-8-300 and the CRJ’s, and you cannot change that now.

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So investors have to decide, stay with the sinking ship for a few more years and “hope” that the CSeries starts to sell in large numbers, which I do believe it will-in time, and that the “milk cow” Global brand is not hurt too badly the next 2-3 years as competition heats up, demand goes down as do margins, and that the CRJ and Q400 have some life in them, at least from repeat customers.

Unfortunately, and god only knows how, but Bombardier is in a situation where it’s future is now in the hands of the CSeries, and what happens to it the next 12 months will decide the future of Bombardier, it surely will not be the only manufacturer of trains and planes for too long.

The team assembled by CEO Alain Bellemare is a good one, and they are and will do a better job than the previous team, but so much is now stacked against them, that they are fighting fires on all fronts, and they needs small victories on the CSeries, CRJ, Q400 and Global fronts step by step to get through the next 18 months, before the stock becomes a penny stock (below $C 1.00).

 

 

 

 

 

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About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 25+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (45+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems be in the business, and help with restructuring for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com and I comment a lot on Google+, my Facebook and LinkedIN.

Discussion

2 thoughts on “MAYDAY ! As if the situation was not bad enough at Bombardier following the Paris Air Show, where NO new orders for any of it’s 3 commercial aircraft were announced, and this week, it’s stock (TSX:BBD.B) hit a 22 year low at $C1.90 per share, down 49.3% in the past 12 months, and down 61.3% in the past 5 years ! another 49% drop and its a “penny stock” (<$C1.00). Meanwhile market capitalization of the company is now at an extremely low $C 4.3 billion for a company with $US 20+ billion in revenue. The latest bad news was that there is a "review" and a 18+ month delay in the new Global G7000/G8000 business jet programs. The Global brand is Bombardier's "cash cow", it is the light at the end of the tunnel today, as it provides the best margins, 60% of business jet revenue, 43% of Bombardier aerospace revenue with just 27% of total aircraft deliveries, trouble there means bigger troubles for the whole company, especially now. The ultra-long range business jet segment is weakening all over the world, new competitors are coming in like the new Gulfstream G500/G600's and Dassault's 8X and 5X, while the current Global G5000/G6000's badly need a "revamp" (e.g. Challenger 300 to 350 and 605 to 650), but everything is on the back burner these days because of the CSeries, a program that has changed the company for the worst, and a program that may yet destroy the company directly or indirectly in the end. Yet they want to stretch it into a 160 seater (CS500) and go toe to toe with Airbus and Boeing in the largest and most contested and price discounted aviation market segment today, the single aisle narrow-body, which will be joined by the Comac C919 and Irkut MC-21 in the next 5 years ? oh boy !

  1. I can’t believe it took so long for former CEO to be fired. What I also can’t believe is that this individual was then promoted to chairman of the board. No wonder investors still don’t want to invest in the company. Have the individual removed from the company and then you might have some investor confidence.

    Oh, is there a way to email the author of this blog? I don’t see any way to do so on the website. Thanks.

    Like

    Posted by Isaac ✈ Alexander (@jetcitystar) | August 10, 2015, 4:10 am
  2. Equity in the company is only 0.25 cents CAD and the market is valuing it at 1.80! 7x book price. Why? With all this going against the company. Perhaps they have confidence in the Quebec government as a backstopper. I would buy the company at 0.75 cents CAD. There’s still light end of tunnel. CAD dollar is 1.25USD so they can cut the c series by 25% right there. It may just become competitive.

    Like

    Posted by tukwila | July 17, 2015, 5:51 pm
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