Bombardier will survive, says this investor

The fire sale at Bombardier (Bombardier Stock Quote, Chart, News, Analysts, Financials TSX:BBD.B) continues with the shuttering of the Learjet, but what’s emerging from the ashes should have a much better chance at longevity. So says Michel Nadeau of the Institute for Governance and former head of Caisse de dépôt, who puts the blame on management for Bombardier’s failures in trains and planes.

Montreal-headquartered Bombardier announced its fourth quarter and full year results on Thursday, showing revenues from its Business Aircraft segment of $5.6 billion for 2020, up three per cent from 2019. At the same time, the company announced it will end production of the storied Learjet aircraft later this year so as to focus efforts on the Challenger and Global lines.

It’s the latest in a series of moves in recent years that have taken Bombardier from a global force in transportation with over 70,000 employees to a much pared down version with now reportedly 13,000 employees worldwide, as the company looks to control its debt and right the ship.

“With our strategic repositioning now complete, we are very excited to embark on our journey as a pure-play business jet company,” said Éric Martel, President and CEO in the company’s fourth quarter press release. “Our unmatched product portfolio, world-class customer services network, and incredibly talented employees give us a strong foundation to build upon. We are encouraged by our momentum in the fourth quarter and are confident in the actions we are taking to navigate through the pandemic and better position the Company for a market recovery.”

Q4 numbers saw Bombardier deliver 44 business aircraft for a total of 114 for the year, including 16 Global 7500 planes. The company said it generated $523 million in fourth quarter free cash flow from continuing operations before interest and taxes. For the year ahead, management has guided for adjusted EBITDA to be over $500 million as the Global 7500 program continues to grow.

And while the company may be a shell of its former self, Nadeau says investors need to accept that this is the reality with the new Bombardier.

“Three years ago Bombardier was a multi-sectoral transportation giant with 70,000 employees. Now they sold their transportation business, they sold most of the commercial [aircraft] business and now they are focusing on upscale business jets,” said Nadeau, speaking to BNN Bloomberg on Thursday.

“I think today we should forget the old Bombardier. We have a new Bombardier, a much smaller one with the just 7,000 employees and $5.6 billion in yearly sales, but that’s the new reality,” Nadeau said.

“I think Éric Martel is really trying to focus on the brands. Bombardier has two brands, Challenger and Global. Learjet is a very old brand. It’s 58 years old, and now they will stop producing them and we’ll have a new Bombardier starting this year,” Nadeau said. “They will have to face their debt —they have a $4-billion debt— but I think they are in a good position to remain as a global player in the business jet environment.”

Much has been made about the Canadian federal and Quebec provincial government’s support of Bombardier over the years, with the consensus seeming to be that taxpayers haven’t gotten their money’s worth, especially now that the Canadian company is no longer competing with the likes of Airbus and Boeing, having last year sold its C-Series program, years in the making with plenty of public funds at its disposal, to Airbus.

Reflecting on the way Bombardier has dealt with challenges over the years, Nadeau says it all came down to production and the company’s inability to deliver and grow the business.

“On the management, we had the feeling that nobody was projecting an image of growth. They were selling planes and [saying] Bombardier planes take off every ten seconds around the world [but] we forget that a corporation should be productive and should be performing, and Bombardier unfortunately was too big for the type of management they had at that time,” Nadeau said.

“They tried to fight against Airbus and Boeing but unfortunately they failed. But now they do understand that the only way to survive is really the business jet,” Nadeau said.

“The global 7500 Craig, it’s a marvellous plane. It’s fantastic. I think they are able to compete in that market,” he said. “Unfortunately, the support of Quebec and Ottawa was not enough for them to compete with Airbus and Boeing, but now we have this new reality.”

Bombardier reported fourth quarter revenue from its business jets of $2.337 billion compared to $2.412 billion a year earlier and a net loss for the quarter of $337 million compared to a loss of $1.719 billion a year earlier.

Bombardier finished 2020 down 75 per cent to $0.48 per share. So far in 2021 the stock is up 27 per cent.