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Bombardier, Helicopter Market, Other Aviation Issues, UPDATES

SUMMARY: Bombardier “B” shares closed at $0.89 today, a reverse stock split is badly needed to avoid the stock being ejected from Canada’s benchmark S&P/TSX composite index. A reverse stock split would reduce the number of shares and increase the stock price accordingly, so as an example a 5:1 reverse split would reduce the TSX:BBD.B outstanding shares from 1.933 billion to 386.6 million shares and increase price to 5 x todays’ price to $4.45 all else being equal. Sounds good ? well only 25 months ago (January 17, 2014) Bombardier the stock was at $4.51 at the current share price decline, another reverse share split would be needed by the end of February, 2018 ! So, I expect that a Bombardier reverse share split will have to be at least 15:1 ($12.00 to $13.35 range) to avoid future problems after the split (e.g. CHC Group). If it were not for bad news these days, there would be no news out of Bombardier. On December 8, 2015 CHC Group stock (NYSE:HELI) hit $0.234 per share, they did a 30:1 reverse split on December 11, 2015 to avoid delisting on the NYSE, and the stock immediately went to $6.55 (7% discount after the reverse split from an expected at par price of $7.02 ) and they are now out of the ‘penny stock’ category. Today (February 4, 2016), CHC Group stock (NYSE:HELI) hit $2.10 per share, or better put, $0.07 per share without the 30:1 reverse split ! it’s all just “smoke and mirrors” to hide horrible stock devaluations by company’s in serious trouble (today’s CHC Group market cap is only $8.35 million for a $1.7 billion a year, 233 helicopter operation), so things can get worst for Bombardier even after a “cosmetic” reverse share split. These are dark days for Bombardier and the offshore helicopter market and their OEM’s as well.

Well, I have been right about the Bombardier shares (TSX:BBD.B) becoming “penny stock”, said it along time ago, the writing was on the wall, but no one really paid attention to my blog and it has stayed a penny stock since January 27th when it hit $0.99, today it hit $0.89 and a continuing slide to nowhere good.

For someone who understand the industry and the market segments that Bombardier Aerospace is in, it was a given, main street media swallowed Bombardier PR and stories. Bombardier itself could not see it, they chose to ignore ALL the red flags around them, too arrogant and ignorant to listen to others, but the market fundamentals were not there and are not there for the CSeries to be successful commercial (technically definitely yes), and the Global G7000 will suffer the same fate, mark my words, it’s the price you pay when you from the minors into the BIG professional league and you are not ready for it, especially the predatory pricing when you don’t have the economies of scale and financial capabilities to “play” in the BIG league.

Cseries-swiss new

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The company is facing a problem with being removed from the TSX stock index, and when company’s stock goes too low, there is only 1 choice to bring the stock price up, and that is a Reverse Share/Stock Split.

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This is a process where a company decreases the number of company stock shares available and increase the price per share that will still give you the same market capitalization rate.

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It is a radical move for company’s in deep trouble and is usually done to increase share price for the following 3 reasons:

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1. To avoid being delisted from and exchange
2. To avoid being removed from a stock index (Bombardier’s concern)
3. To avoid the “penny stock”/low quality stigma

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It is a pretty straight forward process, so let’s assume a 5:1 reverse split, where the company takes 5 shares and combines them into one new share. So, say I have 1,000,000 shares outstanding at $0.50 a share, for a market cap of $500,000.

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After the 5:1 reverse split, I will have only 200,000 shares outstanding now at $2.50 a share, for a market cap of $500,000. Now the ‘appeal’ of the stock may change the market cap, as investors may value the new shares better or worst than prior to the reverse split.

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For those that read my Blog, I looked at CHC Group Ltd. On August 24, 2015 and it’s fall from grace as one of Canada’s premier helicopter operators with 233 helicopters of which 116 are heavy helicopters.

CHC-Expands-Fleet-with-Nine-Sikorsky-Helicopters

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It’s stock (NYSE:HELI) was reduced to $0.40 per share only 20 months after a IPO at $10.00, so as of August, 2015 investors lost 96% of their initial IPO investment. It was going to be delisted on the NYSE by year’s end if it’s stock did not climb above $1.00 and by December 8, 2015 it hit a low of $0.234 a share and the next day it announced it will implement a reverse share split, where 30 ordinary shares (issued and unissued) of a nominal or par value of $0.0001 and would be converted to 1 ordinary share of par value of $0.003 (30 x $0.0001).

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This move should have moved the share price to $7.02 the next day, but it went to only $6.55 but it did what was needed, got the stock out of a hole that would have meant being delsited on the NYSE.

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Now, let’s look at Bombardier, it has 2 shares trading on the TSE with today’s market cap at only $2.137 billion.

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1. TSX:BBD.B at $0.89 (Feb 2/2015) with 1.933 billion shares issued and outstanding (though 2.742 billion are authorized).
2. TSX:BBD.A at $1.06 (Feb 2/2015) with 313.9 million shares outstanding (though 2.742 billion are authorized) with special voting rights.

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So let’s say we do a simple 5:1 reverse stock split with today’s numbers, and we would still have the same market cap of $2.137 billion (assuming same investor valuation for the shares) and the following price and outstanding shares when it is done:

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1. TSX.BBD.B would go to $4.45 a share and outstanding shares would go to 386.6 million.
2. TSX:BBD.A at $5.30 a share and outstanding would go to 62.78 million.

Now, remember that the A shares have special voting rights which are +/- 60% in the hands of the Bombardier family, in this case the number of shares goes down, but control has not changed.
The new TSS:BBD.B stock price would be above $1.00 and should hold above that for some time, though sadly it was only on January 10, 2014 when the stock was at $4.51, so in less than 25 months the stock went down by $3.62, if the same trend continues, another 5:1 reverse split would be needed in February, 2018 !

If you want to know where CHC Group (HYSE:HELI) is today, it is at $2.10, which means that without the 30:1 reverse split, it would be $0.07 per share, a market cap of only $US 8.35 million for a company with revenues $US 1.7 billion and 233 helicopters ! This is an example of how things can go so wrong so quickly in the corporate world, especially for a company too dependent on one sector, in this case oil industry.

The owner of CHC Group, First Reserve, did an IPO on January 16, 2014 on the NYSE (New York Stock Exchange) at $US 10.00 for 31 million shares (43.3% of total outstanding shares). Within 7 months the stock price dropped to $6,30 (loss of 37%), within a year of the IPO, price was $3.03 (loss of 70%), by August 17, 2015 (20 months from IPO, price was at $0.29 (loss of 97%) and NYSE delisting was threating the company. The cosmetic reverse share split saved it from delisting by last Christmas, but as said above, the initial share now would be worth 7 cents without the reverse split, or a loss of value of 99.3% !

While that is an extreme case, I am not discounting the possibility that Bombardier can see some 50% more erosion of its stock price in the next 4 months, no government aid, CSeries order drought continuous, slight delay in entry into service or CSeries production issues and a another delay in the Global G7000 and that TSX.BBD. stock is ready is heading for “junk’ status, as the company is so volatile now to any bad news, investors will scare easily and jump and sell.

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Yup, it’s a ‘dog’s breakfast’ at Bombardier !

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Thanks again, hope you learned something, till next time, cheers.

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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.

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