CHECK OUT August 16, 2016 article on General Aviation delivery summary for 1st half of 2016.
The Learjet product line is about to end anytime soon, as Bombardier looks to sell the brand, which it bought in 1990 for $US 75 million and took on $US 38 million debt, in fact the ONLY aerospace acquisition where hundreds of millions of taxpayers dollars were not involved (like Canada’s Canadair and de Havilland and Shorts in the UK).
The company goes back to 1962 when Bill Lear began work on the first Learjet, the one window per side on the very fast (903 km/hr) Learjet 23 (PHOTO BELOW-LEFT), itself based on the Swiss P-16 ground fighter jet (PHOTO BELOW-RIGHT), the original company was called Swiss American Aircraft Company based in Switzerland, later in 1964 it was moved to Wichita, Kansas and renamed Lear Jet Corporation.
It is worth noting, that the current Bombardier Challenger 650 and the whole CRJ line owes its future to Learjet, as Canadair bought in the late 1970’s a large business jet concept from Learjet then called the LearStar 600 (PICTURE BELOW-LEFT), which was highly modified by Canadair and eventually became the CL-600 Challenger (PHOTO BELOW-RIGHT) the grand father to the current CL-650 (the 4th version of the type) and the CRJ line (CRJ-200/700/900/1000), as they are all based on the original 1970’s type certificate of the CL-600, Challenger yes 37+ years ago ! and still selling.
THE CRJ-900 (ABOVE PHOTO – LEFT) AND THE NEW CHALLENGER 650 (ABOVE PHOTO – RIGHT) are descendants of the original Canadair Challenger 600 of the late 1970’s.
When Bombardier cancelled the Learjet 85 program in 2015 ($2.4 billion write-down), (PHOTO BELOW) which was to be a composite structure fuselage aircraft for 8 passengers and a range of 3,000 nm at Mach 0.82, the top of the line Learjet was suppose to give the Learjet brand a long life, now it has no future, as it struggles against the Textron Citation XLS+ and Embraer Legacy 450, in a VERY soft light mid-size market, where demand and margins are low as price discounting and competition is very high.
The current Learjet 70/75 line (PHOTO BELOW of Learjet 75) has been in steady decline 2007 when the Learjet 40/45 hit a high of 57 deliveries, and in the 1st half of this year, only 6 Learjet 70/75’ have been delivered as sales are way down, even though the asking price of $13.8 million for the Learjet 75 has been heavily discounted now for 2+ years to keep sales up, but now even discounting is failing to stimulate demand unless they go to new unseen levels for business jets.
THE ABOVE GRAPH CLEARLY SHOWS THE STRUGGLE OF THE LEARJET BRAND SINCE 2007 BUT ALSO THE “SOFT” MARKET FOR LIGHT MID-SIZED AIRCRAFT.
THE LEARJET 40/45/70/75 HAVE HAD 474 DELIVERIES SINCE 2002 OR 33.9 PER YEAR ON AVERAGE VERSUS 529 XLS/XLS+ (starting in 2004), FOR AN AVERAGE OF 44.1 PER YEAR (+30%). TELLS A STORY FOR SURE.
Bombardier’s CEO Alain Bellemare said they are “taking a more dispassionate view” of assets than before and in 2015 it sold its flight training business to CAE Inc. for $20 million and in June of this year sold the production and support rights to the CL-215/415 water bomber to Viking Air of Victoria, British Columbia, which already had the rights to the de Havilland line of products (DHC-1, DHC-3, DHC-3, DHC-4, DHC-6 and the DHC-6 which is now in full production as the Viking Air Series 400). No price for the latest water bomber deal was given, but only 170 CL-215/415’s are currently in service globally.
Bombardier needs to trim its debt of $6.8 billion due between 2018 and 2023, which is not going to be covered by its struggling aerospace division, and selling assets raises some cash. Presently $1.4 billion of debt maturity is due in 2018, $600 million in 2019, $850 million in 2020, $840 million in 2021, $1.7 billion in 2022 and $1.25 billion in 2023.
There is NO future growth potential for the Learjet line, I have said this for several years, its in its decline stage of its product life cycle and with 32 deliveries last year, I do not see more than $300 million in revenue after big discounts from the brand, with a very small profit margin, maybe as low as 5% ($15 million profit). Already workers at Learjet are being moved to other programs, and layoffs are coming soon, just as Bombardier is laying off more workers itself as a part of the 7,000 layoffs announced in February of this year along with its $5.4 billion 2015 loss.
The business case is the 2,300+ Learjets in service (though +25% of the older models of Learjets 31/35/36/55/29/29’s, or 500+ aircraft) are for sale and most will not be sold or fly ever again, as values have dipped below $US 1.5 million on many, but the support business for now could be worth $+300 million a year (and declining year by year), but with margins of around 25%, it can be a decent business that generates +$75 million a year in profits today, which at a earnings multiple of 5 can value that business at $ +/- 375 million ?
The only models built in the past 16 years are the Learjet 31/60/45/40/60/70/75 and that is where the support and maintenance business is.
The buyer most likely will be Wichita based Textron Aviation, which now dominates the local aerospace scene and is also a major competitor to Bombardier and with the new Longitude and Hemisphere business jets will be taking on Bombardier’s Challenger 350 and 650 head on.
The future of Bombardier’s business jet business is in doubt, the brands are old, and competitors are catching up with new models from the Embraer Legacy 450/500, Dassault 8X, Gulftream 500/600, Textron Longitude and Hemisphere the whole Bombardier product line is going to crumble within a few years (Learjets, Challenger 650, Global 5000/6000), and by 2020 it will be only the questionable G7000 and the Challenger 350 to hold down the fort, the writing is on the wall.
Sadly, the Learjet brand is facing an end after a good run of 51 years of production, 16 of which were under Bombardier, the industry is tough today, and only good products with a value proposition survive, and soon we shall see the Piaggio P.180 Avanti EVO fade into history as well (another blog).
Till next time, thank you as always.