Yahoo Finance Canada
Bombardier predicts profit growth as private jet market remains strong
The plane maker is also looking to expand its defence business
Alicja Siekierska
Alicja Siekierska
Fri, February 10, 2023 at 6:00 a.m. EST
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Bombardier president and CEO Eric Martel raises his glass in front of a scale model of the new Challenger 3500 in Montreal on Tuesday, September 14, 2021. THE CANADIAN PRESS/Paul Chiasson
Bombardier Inc. expects sales and profits to grow next year, as demand for private jets remains resilient. (THE CANADIAN PRESS/Paul Chiasson)
Bombardier Inc. (BBD-B.TO) expects sales and profit to grow next year, as demand for private jets remains resilient despite concerns of an economic downturn and the company expands into the defense sector.
The Montreal-based company, which reported fourth quarter and annual earnings on Thursday, unveiled a bullish forecast for the upcoming fiscal year. It expects to deliver 138 aircraft, up from 123 deliveries this year, and for total sales to reach at least US$7.6 billion, an increase from US$6.9 billion. Bombardier expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase 21 per cent compared to last year, hitting US$1.15 billion. In 2020, the company reported an adjusted EBITDA of US$200 million.
“The guidance we’re publishing this year clearly reflects that we’re ahead of our plan,” chief executive Eric Martel said in an interview with Yahoo Finance Canada.
“The market has been resilient despite the economic situation worldwide. We can still see movement and orders (happening), but at a more reasonable pace than 12 months ago.”
While the COVID-19 pandemic brought the commercial airline industry to a halt, it was a boon for the private jet market in which Bombardier exclusively now operates. Martel said the pandemic was “an accelerator” for the plane maker and marked a turning point for the once beleaguered company.
“We started to focus on private aviation, and clearly the momentum was very helpful,” he said.
It was not too long ago that Bombardier was on the brink of bankruptcy. After the company exited commercial aviation and sold off its train business, the focus has shifted to private jets.
Bombardier’s stock has been on a tear in the last year. While shares of the plane maker fell nearly 12 per cent on Thursday, the stock was still up 14 per cent this year.
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National Bank analyst Cameron Doerksen increased the price target for Bombardier’s stock, from $67 per share to $72 per share, but lowered the rating to “sector perform” largely because of the “tremendous run” the stock has been on.
“With a solid backlog, positive margin trends and decreasing leverage, we remain confident that financial results will continue to improve over the next several years,” Doerksen wrote in a note to clients.
“However, we feel that the stock is due for a pause in its upward momentum and would prefer to buy the stock on a pullback.”
Doerksen also noted that business jet market sentiment could be softening, with pre-owned jet inventory ticking higher and business aircraft utilization down 1 per cent compared to 2022.
Martel, who took over as CEO of Bombardier in April 2020, said that while demand for business jets has slowed from 12 months ago, the market remains strong in the face of an economic downturn. It’s a trend he says has happened before, pointing to the Great Recession that began in 2008. At the time, Bombardier saw its private jet deliveries increase 20 per cent on an annual basis.
Bombardier also sees significant opportunity to sell its lineup of business jets to the defense sector, to be used for surveillance, communications and other purposes. While the company has not focused its sales efforts on the defence industry (according to Martel, it sells about 10 jets a year to the sector) it represents a growth opportunity.
“We’re going to be building up a defence business,” Martel said, adding that it could represent a billion dollars worth of revenue per year for Bombardier.
“The reason the opportunity is so significant for us is we have an amazing platform that is renowned around the world for its reliability, performance and capability… The defence sector doesn’t need the big airplanes that they used to have and that are costly to operate. There’s many reasons why this makes sense.”
In December, Bombardier released a statement from Martel raising concern about the Canadian government’s possible plan to award a sole-source contract to Boeing for new reconnaissance jets. Media reports said Canada was considering a multi-billion dollar purchase of up to a dozen P-8 Poseidon aircraft from Boeing.
“This should be a normal procurement process with a competition to get the contract,” Martel said.
The company, which reports its financial results in U.S. dollars, said total sales reached $6.9 billion in 2022, up from $6 billion in 2021. It reported an adjusted net income of $101 million, or 74 cents per share, for the year compared to a loss of $326 million, or $3.66 per share, last year.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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