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Global 7000

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UPDATE: Today Bombardier received another $1.5 billion to shore up its liquidity to keep its ‘pet’ projects (CSeries and Global 7000/8000) alive and breathing. Caisse du depot et placement du Quebec (CDPQ) the provinces largest public and private pension manager will take a 30% share in Bombardier Transportation (rail), as Bombardier prepares to burn through $US+1.0 billion next year on the CSeries (entry into service, production, and on every delivered aircraft which should be 20) and another $1.0 billion on the Global 7000/8000 in development and certification costs ($2.6 billion was spent on the failed Lear 85 – how ?). The CSeries is now 49.5% owned by the Province of Quebec, and you know where jobs will be going, as the medium term future of Downsview is now questionable (remember Canadair’s home airport of Cartierville ? sold to make a golf course and a residential area at a good profit to Bombardier) as the Q400 and CRJ lines are in their final 2-3 years of production, as backlogs for both are less than 130 (currently 5 x CRJ’s and 2 x Q400’s are being produced per month), you can do the math right ? They want federal money too as they make plans to send Q400 wing and cockpit work to Mexico as the product life cycle is firmly in the decline phase for both lines, and Quebec wants job guarantees for its stake in the Cseries. At some point in the next 2-3 years look for business jet work (inc. G7000/8000) going to Montreal. Why does the public put in money when the Beaudoin and Bombardier family control 54% of voting rights with 14% of equity ? and they are responsible for the current mess, company needs good corporate governance. The reality is that there are at best only “REALISTIC” 140 CSeries orders after 7 years of sales effort, Airbus was approached, Embraer was approached and no takers were found for the program and now they are stuck with it, slowly writing it down with huge losses. It is not only about the state of finances, but the segment (110 to 149 seats) it is positioned in, but also the huge discounting by Airbus and Boeing which will require +40% discounts by Bombardier to win any large order. Time to change the Board as you cannot solve your problems with the same people that created the problems in the first place, the Lear 85 was written down by $US 2.6 billion and the CSeries was written down by $US 3.2 billion, due to mismagement of both programs.The stock, (TSX:BBD.B) closed at $1.28 today down from $1.36 a week ago and down 70.3% from a year ago, a further drop of 22% and its a penny stock ! The financial markets are NOT impressed, everyone knows that its all a indirect BAILOUT as the company lost $4.9 billion last Quarter ($700 million without write downs) and now you have the Quebec Government in the CSeries program, and that is never good for any business as Canadian Governments have shown that they have NO idea how to run a business, we saw that with Canadair, de Havilland, Air Canada, etc. Lastly, no one discusses it but the BIG problem for the CSeries is that it will NOT make money in an industry discounting 40% off List Price today, and production of narrow body airliners is going to 125 units per month, and Bombardier plans 10 per month and it too will have to discount 40% down, making profitability at best a long term proposition, if ever.

Today Bombardier got another bail out from the Province of Quebec, this time by getting Caisse de depot et placement du Quebec (CDPQ),  Quebec’s long term public and private pension fund, to buy 30% of its Bombardier Transportation (rail business) for $1.5 billion (valuing the division at only $5.0 billion), on top of the recent … Continue reading

SUMMARY: Bombardier’s stock (TSE:BBD.B) hit a new 22 year low again today at $C 1.46 a share, a 62% drop from a year ago, market capitalization is now $C 3.25 billion (less than CAE and just above WestJet Airlines) for a $US 20 billion a year company, that is just unacceptable for any public company. The company just announced a 2 year delay in its new $US 75 million per unit Global 7000 business jet program (already behind by 2 years), right after it announced a 30% production reduction from 80 to 55 units per year of its “cash cow” Global 5000/6000 business jet brand due to a ‘softening’ market globally but also very much due to competition from the #1 OEM in the ultra-long range segment (+/- 48% market share), Gulfstream Aerospace, which is having a very strong sales year (book to bill ratio is 1.0+) with its new G500/600’s and existing G650/G650ER’s , and # 3 OEM (+/- 15% market share), Dassault, with its new Falcon 8X and 5X. Bombardier’s CEO Alain Bellemare is doing a great job keeping the “Titanic” afloat, but 1st half results are worrying, both Commercial and Business Aircraft did have slightly better revenues than last year, BUT most worrying are the Book to Bill ratios (orders/deliveries), Commercial had 0.67 (CRJ line only 0.26) while Business Aircraft had 0.29, in short, both Commercial and Business Jet divisions are seeing very few new firm orders, yet Embraer posted book to bill ratio of 2.64 for its E-Jets (124 firm orders, 47 deliveries) in the first half of this year, the 124 E-Jet orders vs 7 CRJ orders (7 x CRJ-900’s for Mesa) so far this year, says novels about the two products attractiveness, their marketing, promotion and sales, a very serious downward trend indeed for the CRJ brand. Now Bombardier will see deteriorating revenue and cash flow numbers from Commercial and Business aircraft divisions at a time it needs lots and lots of cash, as it “Burned” over $US 1.553 billion in free cash-flow (FCF) in the first 6 months of this year on the CSeries and G7000/8000 programs, and is on target to “Burn” another $US 1.5 billion by year’s end, which wipes away all the new equity and debt it raised in February of this year. An IPO (initial public offering) of Transportation division (trains) is set for the 4th quarter this year which will raise lots of cash (up to $US 5.0 billion for 100%, but only a minority will be sold, most likely to Siemens), so around $US 2.0+ billion is possible as debt is very high at almost $US 10 billion, so where is Bombardier heading ? Many analyst and investors believe there is NO clear path to recovery in sight, while Macquarie Financial lowers BBD.B target stock price to $C 1.00 and yet its own subsidiary, AirFinance (commercial aircraft lessor) has 40 CS300’s on order worth $US 3.14 billion ?? On the bright side, the CSeries is 3+/- months away from certification, and new orders will start coming in after that and the stock will rebound on any positive news. More liquidity is badly needed by 2017, but the Beaudoin family’s control 54% of Bombardier through special class shares, a situation many investors find unacceptable, and many of them may not be lining up next year when Bombardier will need to raise more equity and debt once again, and NOW is the best time for ex-CEO Pierre Beaudoin who created the current mess, and who is now Bombardier’s Executive Chairman of the Board, to go ! It is what is best for the future of the company, as many tough times are still ahead, and there should only be one ‘master’ at the helm at this time as the company’s future is at a crossroad.

Well I am back to writing about Bombardier, my last article was on July 16, 2015 when Bombardier’s stock (TSE:BBD.B) was at a 22 year low of $C 1.84 a share, and I thought it had hit rock bottom, having laid off up to 6,950 employees since January 2014 in 4 rounds and a 5th … Continue reading

SUMMARY: Paris Air Show 2015 is done, the winners were again the duopoly of Airbus and Boeing with 752 orders ($US 107.2 billion at “list price”) out of a total of 958 orders. The BIG loser was surely Bombardier which finally after 7 years from its launch, made its debut with both the CS100 and CS300 airliners, but left the show with 0 (zero) in new orders for their CSeries, Q400 and CRJ’s brands, which should be worrying, but after the show Bombardier said it was “absolutely satisfied”, with what ? The fact it had to choose the little known, barely profitable, Latvian government owned airBaltic as its launch customer for the CS300 (13 x CS300’s on order and 7 options) says novels about the poor quality of its order book. The airline’s order has a “list price” value of $US 1.44 billion, yet this airline has made a profit of only $US 11 million in the past 5 years on revenues of $US 688 million (1.6% net profit margin) ? unfortunately they have no “better” airline for such an important role. Meanwhile Bombardier now seriously talks of a stretched 160-180 seat CS500 to challenge Boeing and Airbus ? really ? it’s stock price keeps dropping, (TSE:BBD/B) is at $C 2.25 today down 45.8% YTD (year to date) and the corresponding drop in market capitalization to only $US 5.11 billion, investors are worried and Bombardier wants to spend more money on a CS500 to take on the big duopoly of Boeing and Airbus head on in the most lucrative market, the single-aisle/narrow-body segment ? Individual losers were the A380, A350-1000 and the MRJ, with no new orders, while little known Viking Air of Canada announces 50 “orders” from China for its pricey $US +7.5 million Series 400 Twin Otter even though the Chinese have a similar, good performing, FAA certified and cheaper Y-12E ? Embraer celebrated its 2 year anniversary at Paris of its E2 launch, booked 25 E2 orders at the show and now has 325 firm orders, while the CSeries is now 7 years past its launch (July 18, 2008) with only 243 firm orders, but realistically it is only 130 orders at best. ATR books 46 orders and 35 options at the show, as it solidifies its market dominance in the large turboprop market segment after 160 firm orders in 2014. Sukhoi’s SSJ-100/95 gets an order for 3 as shamefully up to 33 “white tails” (out of 85 delivered, or 39% of delivered aircraft) await customers even with price discounts of 56%, while the program struggles with production, sales, marketing, corporate governance and politics, as 51% partner Finmeccanica (Italy) is restructuring and understandably contemplating its exit from the Italian-Russian joint venture and surprisingly it also has doubts on its future with the very successful ATR program where its fully owned subsidiary Alenia-Aermacchi is a 50% partner with Airbus Group. Airbus and Boeing want to increase production of single aisle/narrow-body airliners (B737Max now has 2,773 orders and A320neo has 3,854 orders) to a possible 115 per month (Boeing to 52, Airbus to 63) by 2018 ! is that over optimism in this unprecedented period of growth ? can the already over extended supply chain even handle the extra work ? With an average monthly delivery of 112 aircraft in 2014 of all sized aircraft by both OEM’s (1,349 units), the latest Boeing 20 year forecast of 35,560 aircraft would translate to an average of 148 aircraft per month for all sized aircraft by both OEM’s, an increase of 32% on 2014 delivery numbers, with new orders in 1st half of 2015 already down on 2014 ? What role do speculative orders play in this order frenzy ? Deals at Paris are always quoted in List Prices but who is getting a good deal ? are you getting a good deal ? how do you know you got a good deal when almost everyone gets a discount, no one pays List Price and it is all so secretive, so how low can Boeing and Airbus go ? how about 64% off on big orders ? yup, enough to make sure that new competitors like the CS500, C919 and MC-21 do not win orders based on price. Lastly, Russia’s aggressive stand against NATO is seriously raising tensions in European countries on the Russian border, since 2008 Russia has annexed and integrated 4 Russian speaking enclaves/territories from 3 of its neighbors (Georgia, Moldova and Ukraine), now open conflict is a real possibility, and Russia’s military thinks a small tactical nuclear response today is possible without triggering a WW III ! in this political environment it is time for tough economic sanctions on Russia and especially its aerospace industry, the Sukhoi SSJ-100 is getting lots of financial support from President Putin, as it is the only Russian commercial aircraft ever built with any western appeal. It is time to stop buying Russian aircraft and stop ALL support for Russia’s aerospace industry, as any military conflict with Russia will make corporate profits absolutely irrelevant anyway !

With the 2015 Paris Air Show now behind us, it is worth to look at the final results of the big aerospace event and analyze the winners and the losers as it gives a pulse on which OEM’s are on top of their game and those that are not. —————————————————————————————————————————————————————————————– The battle in the narrowbody … Continue reading

ABSTRACT: Bombardier announces its 4th round of lay-offs in 17 months, another 1,750 employees are let go on top of 5,200 laid-off already. The sacred “CASH COW” of Bombardier Aerospace, the high margin Ultra-Long Range Global brand is facing a softening in its market segment. The Bombardier Global brand (the $52M G5000 and $62M G6000) keeps Bombardier Aerospace alive, generating $4.5B (on 80 deliveries) in revenue in 2014 (43% of Aerospace revenue, 60% of Business Jet revenue with only 27% of deliveries). New competition from the Gulfstream’s G500/G600 and the Dassault Falcon 8X is threatening Global sales and margins at a time when Bombardier is bleeding cash certifying the CSeries and its new Globals ($75M G7000 and $71M G8000). Presently Bombardier Commercial has only 90 CRJ’s in backlog (18 months of production) and only 52 Q400’s in backlog (26 months of production), while the CSeries with $5.3B in deferred program costs and big price discounting by Airbus, Boeing and Embraer, will see every CSeries sold at a HUGE loss for many years to come. Now Bombardier is looking to sell its rail unit to raise cash, and in all seriousness all of this leaves the new Global 7000 and 8000 as the only hope for a brighter future at Bombardier Aerospace, and the possibility of a future Chinese acquisition of Bombardier Commercial (aka “Combardier”) is very real.

Once again Bombardier has acknowledged that things are not well with the world’s only plane and train manufacturer, and will lay-off another 1,750 employees on top of the 5,200 already announced since January 21, 2014. The big hit will be in Montreal (completions) with 1,000 employees, Toronto (assembly) with 480 employees and Belfast, Ireland with … Continue reading

ABSTRACT: Bombardier has gone outside the company and family for its new President/CEO, Mr. Alain Bellemare from UTC, his main task has to be the radical turnaround of the $10.49 B a year Aerospace Division, as the $US 3.4 B CSeries program is now $US 5.4 B ! and EIS is NOT until 2016, in 2014 Aerospace lost $995 M, free cash flow was a $ -1.059 B, Commercial Aircraft’s CRJ and Q400 sales slowly fading even with +30% discounts (only 27% of revenue) while business jet orders are down 59% in 2014 from 2013 with a disappointing Order to Bill Ratio of only 0.6 (sold less than it delivered), Business Aircraft has always been strong (72% of revenue) now facing new competing aircraft programs that are going to challenge it’s sacred high margin ‘Cash Cow’ Global brand ($4.5 B in sales on 80 delivered and 43% of total revenue), off course more liquidity is needed to finish the CSeries and Global 7000/8000’s, so $US 2.1 B in new in debt and equity will be raised, while the struggling CSeries order book of 243 units now needs at least 550 orders to break-even, it is time to fix Bombardier Aerospace from the top down and possibly JV with China’s Comac (aka “Combardier”)

Following up my blog article on Bombardier Aerospace on January 20th, where I dared to ask the question if it was time for Bombardier to look outside Bombardier and the family for a new CEO, like they did back in 2002, the answer came Feb 11th, when Mr. Alain Bellemare was hired as the new … Continue reading

ABSTRACT: Bombardier takes another credibility hit, stock drops 25% in one day as investor confidence is shaken and they are selling, another senior executive departs, the Learjet 85 is “paused” with a $US 1.4 billion write down, certifying 4 new jets at once costing $US 6.9 billion was “nuts”, the Q400 and CRJ’s programs are near their end, another 1,000 employees are to be laid off on top of 2,000 last year, corporate credit rating cut, talk of a Q400 and CRJ assembly line in China, only 243 firm orders for the CSeries after 78 months of effort, and probably 100+ will NOT take delivery, Alenia a major CSeries subcontractor sues for $US 121 million, CSeries EIS not till 2016, low fuel prices diminish the fuel efficiency argument for CSeries, while it’s launch customer is a secret ? sell Commercial Aircraft Division to China’s COMAC and create Combardier ? capital markets worried about liquidity and management, Business Aircraft Division now discounting some aircraft, Learjet cannot survive on only 33 Learjet 70/75 sales (+/- $US 335 million) a year, is it doomed ? sell it off ? with a cashflow of only $US 800 million in 2014 will Aerospace have the cash to complete certification and produce the $US 1 billion Global 7000/8000 business jets and the $US 4.5 billion CSeries ? time for an outsider as CEO – again ?

Bombardier, the world’s only plane and train manufacturer continues to disappoint shareholders, employees and customers, and on Wednesday, January 15th, we saw the wall crash down, when Bombardier stock (TSX:BBD.B) crashed downwards by 25.85% in one day ($US 1.8 billion in market capitalization) on volume of 57 million shares, to $CAD 3.07 from $CAD 4.14, ouch … Continue reading

SUMMARY: Pilatus Aircraft has rolled out its first business jet, the PC-24 is being marketed as the “Super Versatile Jet” ? AND “it’s the only aircraft combining the versatility of the turboprop with the size of a medium size jet and the performance of a light jet” ? AND “It’s a plane that simply does not fit into any of the existing business jet categories” ? to good to be true ? or marketing gone wild ? Is there really a market for operating into remote, short and dangerous unprepared airstrips with a $8.9 million jet with high net worth VIP’s on board or a mere 2,500 lbs of cargo on board ? come on, really ? Simply Pilatus is exaggerating and misleading customers, it has a jet with a big cabin equal to biz jets of $15+ million (501 ft3), and that is its big and unique value proposition. Promises of great short field performance is highly questionable as power to weight ratio (0.39) is at par with existing aircraft and the wings and flaps are too close to the ground to be safe for any unprepared airfield operations. Contrary to Pilatus claims the PC-24 is NOT designed for short unprepared airfields, nothing on its design is unique in that perspective, but it will be very attractive to buyers for its large cabin size at a relative low price. If you really need to fly into remote,unprepared and short airfields, buy their PC-6 or PC-12 but not the PC-24, sorry but this is just a case of marketing myopia, and marketing gone wild ! This is not a PC-6 or PC-12 where you can almost go anywhere, this is a high value business jet for high net worth clients, who are not going to risk their lives going into short rough airfield in remote regions, that is just silly marketing, that will backfire, its like marketing an expensive limousine to drive VIP’s into remote rough terrain regions or to load your expensive limousine with freight ? dum idea no ?

The August 1, 2014 roll out of the new $US 8.9 (2017 price) or around $US 8.4m (2014) Pilatus PC-24 business jet was very impressive, and a major milestone for Pilatus Aircraft as it diversifies its product range beyond its military PC-7 and PC-21 turboprop trainer sales and build on its 1,200+ delivered PC-12 single … Continue reading