Canadian luxury jet maker Bombardier Inc. BBD-B-T +6.42%increase is boosting its financial targets as it sets a new course towards consistent profitability after years of strife.
The Montreal-based manufacturer said Thursday a five-year turnaround strategy launched in March 2021 is yielding results that are either meeting or exceeding its initial plans. Jet sales are holding strong and other revenue streams like servicing planes are helping fuel the bottom line, prompting the company to hike its financial objectives on several key metrics.
Bombardier is now aiming to generate at least US$900-million in annual free cash flow by 2025, up 80 per cent from the US$500-million initially projected. Revenue should top US$9-billion, up 20 per cent from its initial target of US$7.5-billion while adjusted earnings before interest, taxes, depreciation and amortization should hit a minimum of US$1.625-billion, up from the previous US$1.5-billion target, according to the company.
“We are confidently raising the bar,” Bombardier Chief Executive Officer Eric Martel said in a statement released Thursday morning ahead of an exchange with equity analysts for its investor day. “While we are carefully monitoring the current market situation, we know that we have all the ingredients in place to remain a driving force in the industry.”
Mr. Martel took over as Bombardier CEO in the spring of 2020, inheriting a heavily-indebted company still in the throes of crisis as it tried to complete the sale of its train unit to France’s Alstom SA and reinvent itself as a single-business manufacturer of private jets. At the time, its share price had fallen to lows not seen in a quarter century and its business prospects were clouded by the fallout from the Covid-19 pandemic.
The CEO and chief financial officer Bart Demosky hatched a blueprint for recovery that hinged on cementing its share of new aircraft sales, cutting costs, paying down debt, and dramatically increasing its aircraft repair and service capability. They’re also building out Bombardier’s defense business, and now see that unit being able to triple its revenue to more than US$1-billion in the second half of the decade.
Bombardier’s top executives set initial financial goals that some investors have labelled overly conservative and therefore easier to achieve. But there’s no doubt their plan has put the manufacturer on firmer footing.
The company, controlled by its founding Bombardier-Beaudoin family through a special class of super-voting shares, more than quadrupled its profitability on an adjusted EBITDA basis between 2020 and 2022 while growing revenues 23 per cent. Including this year’s transactions, the corporation has reduced its debt by $4.5-billion over the past three years, earning credit rating upgrades from Moody’s Investors Service and Standard & Poor’s.
Bombardier announced two years ago that it would narrow its manufacturing to bigger and pricier jets such as the US$75-million Global 7500 and end production of the smaller-cabin Learjet models. That decision is now paying dividends because the high net-worth customers buying those planes are less affected by inflation and regional economic slowdowns than those with lesser means.
The corporation also benefitted from a surge toward private plane travel during the COVID-19 pandemic, seeing strong sales to individuals and fleet operators as more people chose to avoid the airport chaos and flight schedule disruption that became common in commercial air travel. It now has a backlog of orders worth two years of work.
Walter Spracklin, an analyst at RBC Capital Markets, says the pandemic has “structurally increased demand” for private jets and private travel among wealthy individuals. Data from business aviation intelligence firm WingX shows business jet activity as measured by flights is down 3 per cent this year through March 13 compared to the same period last year but 16 per cent ahead of 2019.
Still, it remains to be seen whether the changing fortunes of Bombardier’s billionaire clients will affect demand. Soaring equity markets and rising valuations of everything from mansions to cryptocurrencies to commodities boosted the collective fortune of the world’s 500 richest people by more than US$1-trillion in 2021, according to Bloomberg data. Last year, the ultra-wealthy saw US$1.4-trillion erased from their net worth.
“March 2022 was the record peak in business aviation activity, reflecting the pent-up demand as the pandemic faded and lockdowns were released, so it’s not a great surprise to see lower year-over-year activity,” WingX said in its latest weekly bulletin. “However, with emerging concerns of another global financial crisis, we may well see further softening in business jet usage in the next few months.”
Bombardier faces pressure on other fronts.
Two bondholders previously locked in a dispute with the manufacturer over its move to sell the train business and other assets are now suing the company. They say the decision violates the terms of debt covenants on a US$250-million debenture maturing in 2034 and deprives them of basic credit support for their investment that came from a diversified transportation business.
In a claim filed with the New York Supreme Court, Antara Capital Master Fund and Corbin Opportunity Fund are demanding relief and damages over alleged breach of contract. They say the covenant stipulates that Bombardier cannot dispose of “the whole or substantially the whole” of its assets for the 30-year term of the debt, and argue that Bombardier’s move to sell US$260-million worth of new 2034 bonds through private placement to Canso Investment Counsel Ltd. in May 2021 diluted the dissenting bondholders and was illegal.
Bombardier says the allegations are without merit and that it has never been in breach of any covenant under the relevant indenture. When the bondholder issues first surfaced in 2021, Mr. Martel characterized them as “a little bump in the road” that would not distract management from its effort to turn the company around. More recently, he said he remains confident that Bombardier it will win the legal battle but says a resolution could take years.
Leave a Reply
You must be logged in to post a comment.