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Opinion | After years of failed promises and near-death experiences, Bombardier is flying high under CEO Éric Martel


Shares in Bombardier Inc. have become a hot stock.

Without attracting much notice, shares in the long-struggling transportation firm have soared in value more than fivefold in the past year.

There’s a reason.

The new Bombardier is a pure play in business aircraft, a sector that held up well during the pandemic and is expected to post strong post-pandemic growth.

The firm’s financial performance is improving, despite pandemic challenges that have hit aviation especially hard. Bombardier has strengthened its chronically worrisome balance sheet.

And at the end of its latest fiscal quarter, March 31, 2021, Bombardier had a healthy order backlog of $10.4 billion (U.S.). That’s down just 3 per cent from the same period a year earlier, at the start of the pandemic.

Bombardier is the market leader in mid-sized business aircraft. And it is tied with the Gulfstream division of U.S. defence contractor General Dynamics Corp. for global market-share leadership in medium- and large-sized business planes combined, at about 40 per cent each in 2020.

And after a gruelling half-decade of shedding several albatrosses, a focused Bombardier now caters exclusively to a select group of rich buyers.

That’s a switch from its previous clientele of tight-fisted government agencies and commercial airlines, whose frugality meant the narrowest of profit margins for Bombardier.

By contrast, customers for Bombardier’s Challenger and Global aircraft, which top out at $73 million a copy for the Global 7500, are affluent. They include multinational corporations, wealthy families and individuals, governments buying planes for high-ranking officials, and charter and “fractional ownership” providers.

The latter sell slivers of ownership in private planes as time-shares, like those in the property market.

“The wealth levels among the people that would be the typical buyers of business aircraft have done well through the pandemic,” Chris Murray, an analyst at ATB Capital Markets, said in a recent client note.

“Bombardier is well positioned to serve the upper end of the market.”

To be even more certain of that, turnaround CEO Éric Martel, an electrical engineering graduate from Laval University who took office in April 2020, announced in February that Bombardier will discontinue production of the firm’s iconic Learjet series this year.

That exit from the small, or “light-aircraft,” segment of the business-jet market leaves Bombardier with just two families of planes — its mid-sized Challenger series, and its large, long-range Global aircraft program.

But for Martel, Learjet is not an ideal fit with the new Bombardier. Learjet makes low-margin airplanes. And it is facing competition from several new entrants in the light-aircraft segment.

After years of failed promises and near-death experiences, Bombardier is a “show me” company. It must work hard to prove that it can be a sustainably viable enterprise.

Shuttering Learjet, which helped Bombardier become one of the world’s major players in business aviation, is a step meant to show Bombardier’s genuine commitment to just one market — high-margin business aircraft.

As to viability, an unspoken factor in Bombardier’s upside potential is the increase in demand for its products if it can remove the fear among buyers that Bombardier someday won’t be around to stand behind its planes.

To that end, Martel, 53, has shored up Bombardier’s balance sheet, paying down debt with proceeds from the sale of its massive transportation division, in a deal that closed early this year.

The firm was also successful this year in raising $1.2 billion in long-term debt to retire short-term liabilities, reducing its debt-servicing costs.

Bombardier’s liquidity is a comfortable $2.6 billion at the end of its latest quarter.

In contrast with a Bombardier routinely, and correctly, accused of lack of transparency, Martel has been candid about necessary further cost reductions. They are a legacy of the former bloated Bombardier that has only begun to fade.

“Despite past restructuring actions,” Martel told investors in Bombardier’s latest annual report, “Bombardier still has an infrastructure that is too large for the current market conditions.”

That legacy means Bombardier must deal with the strike that began this week at its former Downsview operations, which it sold but where it retains lingering contractual obligations. It must also deal with U.S. and European probes into possible long-ago improprieties relating to operations of the old Bombardier that it has nothing to do with.

And that legacy also means Martel’s plan for annual cost reductions of about $400 million won’t kick in until 2023, after remaining commitments from the old Bombardier are resolved.

Martel expects to cut production costs for the company’s Global 7500, which celebrated its 50th delivery this year, by about 20 per cent by the time Bombardier delivers its 100th copy of the plane.

Bombardier is marketing the Global 7500 as not only the company’s crown jewel but the industry’s.

The Global 7500 is the industry’s largest and longest-range plane, holding the record for the longest city-pair flight in business aviation, from Detroit to Sydney, a distance of more than 15,000 km. (You can get a feel of what it’s like to fly at 55,000 ft. in sumptuous confines by clicking here.)

Bombardier’s mid-size Challenger 350, by contrast, has a range of about 6,000 km. But Challenger is the bestselling family of aircraft in business aviation.

Bombardier also benefits from its fleet of approximately 4,900 aircraft in service worldwide, a major source of revenue from parts and maintenance services.

Martel is expanding Bombardier’s global network of service centres to capture a larger share of the growing aftermarket business in service and parts-supply contracts.

In Martel’s five-year turnaround plan, services revenues will account for 27 per cent of the total by 2025, up from 18 per cent in 2020.

The new CEO also sees revenue-growth potential from marketing his stable of versatile aircraft for specialized missions, including Medevac, intelligence, surveillance and reconnaissance.

Martel’s turnaround plan has no shoot-the-moon goals.

It forecasts a 34-per-cent increase in revenues, to $7.5 billion by 2025 over this year. Adjusted EBITDA should triple in that period to about $500 million. And Martel is aiming for a 20 per cent EBITDA margin by 2025, compared with 2020’s 4.4 per cent.

Those reasonable goals are well-advised, given the challenge of achieving them in the notoriously cyclical business aviation industry. Bombardier is also pitted against formidable rivals in its high-end market, including Gulfstream, Brazil’s Embraer SA, and France’s Dassault Aviation SA.

Lending credibility to those goals is Martel’s successful track record in an earlier, 13-year-long stint at Bombardier, when he oversaw development of the Global 7500.

In 2015, Martel was lured away to run Hydro-Québec, the giant power utility.

In that job, Martel boosted U.S. power exports and made good on his promise to Quebecers to keep power-rate increases modest. During his tenure, Quebec boasted the lowest residential power rates in North America.

Some Quebec Inc. commentators said Martel took a demotion in returning to Bombardier, a fraction the size of Hydro-Québec.

They were wrong, of course. If Martel can pull it off, restoring to health a former flagship of Canadian technological innovation would be a turnaround for the history books.



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