Bombardier turns focus on private jets, trains

Bloomberg

By relinquishing control of its
C Series jets to longtime rival Airbus SE, Bombardier Inc. is scaling back its ambitions to build jetliners for the world’s airlines.
The deal marks a step away from what had been touted as the crown jewel of Canada’s biggest aerospace company before it was tarnished by cost-overruns and trade disputes. With the future of the C Series now up to Airbus, the Montreal-based manufacturer is likely to sharpen its focus on private jets and trains—two businesses with higher margins.
“This is Bombardier opening the door to the transition away from commercial aviation,’’ Karl Moore, a professor of management strategy at Montreal’s McGill University, said. “I’m not sure they had much of a choice. Surely they will have interesting opportunities in executive jets and trains, and they can reinvest in those.’’
Private business jets have been Bombardier’s most profitable division, while commercial aircraft—weighed down by losses tied to the development of the
C Series—ranked among the company’s worst-performing. Bombardier’s commercial unit includes older products such as the CRJ regional jet and the Q400 turboprop.
The C Series is Bombardier’s biggest and most expensive commercial jet programme, often billed by the company as a “game-changing’’ aircraft with superior economics and fuel efficiency. The deal with Airbus gives the European planemaker majority control with a 50.01 percent stake. Bombardier will retain about 31 percent, and the Quebec government will hold 19 percent.
Regional commercial jets contributed the bulk of Bombardier’s revenue during the 1990s, but orders eroded over the last decade as Brazilian rival Embraer SA
captured market share with newer models. Sales have also slowed for turboprops as European rival ATR, partly owned by Airbus, offered cheaper and lighter products.
As business has lagged in commercial aviation, trains and
business jets promise growth. Deliveries of luxury jets are forecast to rebound in 2018, and with Bombardier about a year away from starting shipments of its biggest-ever private plane, the Global 7000, prospects in that segment are rising, said Cam Doerksen, a National Bank Financial analyst in Montreal.
“The business jet market is at a cyclical low with deliveries, and Bombardier has a brand new aircraft coming to market in a year,’’ he said. Bombardier’s train segment is also poised for improvement. The manufacturing unit has been hobbled by well-publicised delays on major projects such as streetcar deliveries to Toronto. The company is now working to improve profits, in part through cost-cuts and more factory specialisation. The train business bore the brunt of a company plan—announced a year ago—to eliminate 7,500 jobs globally.

Rail Deals
Bombardier also remains open to rail partnerships after missing out on a combination with Germany’s Siemens AG, which picked Alstom SA as its partner.
“We will continue to explore opportunities on the train side,’’ Bombardier Chief Executive Officer Alain Bellemare said, after the announcement of the Airbus agreement. “Rail is a core business for them,’’ said Doerksen, who sees opportunities for deals “at some point. In the meantime they will continue to work on margins.’’
Whether commercial jets also remain a core business is yet to be seen, he says. Regardless, Bombardier’s joint venture with Airbus allows the company to extract more value from its C Series jets by capitalising on the marketing muscle and supply chain economics Airbus will bring.

Bombardier’s stock takes off
Bloomberg

Bombardier Inc. surged the most in 18 months after the company ceded control of its slow-selling C Series jet programme to Airbus SE. Bonds rose the most among US high-yield notes.
The deal improves the chances that the all-new single-aisle aircraft will catch on with airlines worldwide, backed by Airbus’s marketing muscle.
Bombardier hasn’t landed a major order since April 2016 and the aircraft absorbed a new blow when the US Commerce Department slapped it with 300 percent tariffs after a complaint by Boeing Co.
“The value associated with the reduced stake is likely much higher,” Fadi Chamoun, a BMO Capital Markets analyst, said. “For Bombardier, the deal reduces risk and opens up the opportunity for the programme to achieve commercial success that would have been nearly impossible to contemplate otherwise.”
Airbus’s control of the C Series boosts Bombardier’s viability after more than $6 billion in development costs drained its cash and forced the jetliner to rely on government assistance.
Bombardier’s widely traded Class B shares advanced 21 percent to C$2.87 at 9:45 am in Toronto after climbing as much as 25 percent for the biggest
intraday gain since April 2016.