Bombardier Inc. is making an all-in bet on the unpredictable corporate jet market, with no ace in the hole.
After shedding its commercial and propeller aircraft businesses, and agreeing to sell its passenger train equipment unit to Alstom SA, the Canadian company’s only remaining product will be making and servicing corporate jets. That’s a risk none of Bombardier’s competitors has been willing to take.
The producers of Gulfstream, Falcon, Cessna and Legacy brand corporate planes all have defense units or other businesses to help offset the downturns that routinely hit the market. During the last recession, private-jet deliveries plummeted to 846 in 2009 from more than 1,100 in the previous year, and then sank to a low of 614 in 2018, according to JPMorgan Chase & Co., amid trade-war concerns and sluggish commodity prices.
The defense businesses have allowed private jet makers to weather periods of weak demand and maintain investment in new plane models, which helps drive sales, said Roland Vincent, an aviation consultant based in Plano, Texas. Stripping away that counterbalance puts Bombardier in a more precarious position than its competitors, he said.
While rivals have their defensive businesses, “Bombardier has none,” Vincent said. “It exposes the company to more cyclicality.”
Best Option
Bombardier didn’t have much choice but to sell off parts of the company to pay down debt, according to Chief Executive Officer Alain Bellemare. The company’s commercial aviation unit racked up losses of $400 million in 2016 and was burning through $1 billion in cash, Bellemare said last week. The train unit was confronting “challenging projects” this year that were expected to drag on profit margins.
By contrast, the jet business is poised to do well this year as Bombardier ramps up deliveries of the Global 7500, the biggest and farthest-flying business plane now on the market, the CEO said. The aircraft, listed at $73 million, went into service at the end of 2018 after a two-year delay and is sold out through 2022. Bombardier expects 160 business jet shipments this year, including 35 to 40 Global 7500s, up from 142 in 2019.
“We’re extremely well positioned,” Bellemare said in an interview with BNN Bloomberg television in Canada. “We have a world-class franchise, amazing products and great capabilities.”
Bombardier fell 9.7% to C$1.49 at the close Tuesday in Toronto. The shares have dropped 23% this year.