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Bombardier Rallies to Lead Aerospace on Airbus Deal, Luxury Jets

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Bombardier Inc. is flying high — and analysts from Goldman Sachs Group Inc. to AltaCorp Capital Inc. say the rally has plenty of room to continue.

The Canadian planemaker is heading for its biggest annual stock gain in almost three decades, only two years after its shares dipped below C$1. The private-jet market is rebounding just in time for the debut of the company’s swanky Global 7000. And a partnership with Airbus SE is paying dividends in the form of stepped-up sales of a small jetliner Bombardier developed — as evidenced by JetBlue Airways Corp.’s $5.4 billion order Tuesday.

The improving results highlight the company’s progress under Chief Executive Officer Alain Bellemare, who has been working to ease the strain from two aircraft-development programs that left Bombardier saddled with about $9 billion in debt. His turnaround effort still has miles to go, but his moves to shore up liquidity, cut jobs and ally with Airbus have increasingly won over investors.

“They’ve de-risked the company, and people are starting to realize that,” Cam Doerksen, a National Bank Financial analyst, said Wednesday in a phone interview. “There have been a number of positive events in the last few months, including a better environment for business jets. The prospects for positive free cash flow are becoming more apparent.”

Rising Returns

Bombardier rose 1.5 percent to C$5.49 at 10:56 a.m. in Toronto, having earlier touched its highest intraday level since August 2011. The shares have advanced about 80 percent so far this year — the third-biggest gain on Canada’s S&P/TSX Composite Index. They also boast the best return among 48 global aerospace companies with a market value of at least $500 million, according to data compiled by Bloomberg.

Doerksen has an outperform rating on Bombardier stock, which he predicts could reach C$6 within 12 months.

Bombardier expects to break even on a cash flow basis, plus or minus $150 million, for all of 2018. The company reaffirmed the forecast when it released its first-quarter results on May 3 and announced the sale of its Downsview property near Toronto for $635 million cash.

Rising demand for business jets and trains, Bombardier’s two biggest lines of business, are two factors stoking investor enthusiasm.

Business Jets

Private plane orders climbed in the first quarter from the previous three-month period, ending a slump of almost two years. Inventories of used business aircraft, meanwhile, are near their lowest in more than a decade.

Bombardier is working toward the service debut of its most advanced ultra-long-range business jet, the renamed Global 7500, in this year’s second half. Montreal-based Bombardier is banking on the plane, which will sell for about $73 million, to contribute about $3 billion in annual revenue at the start of the next decade.

“The business jet market is continuing to increase, and the Global 7500 looks like it’s going to enter service on time,” AltaCorp Capital analyst Chris Murray said. “Meanwhile, their train business is moving to an inflection point, and you should see acceleration of cash flows in the back half of the year. You put all of this together and you see some rationale for the story to improve.”

Murray raised his rating on Bombardier to outperform from sector perform last week, boosting his 12-month target price to C$6.50 — a 44 percent increase.

Airbus Partnership

On the commercial aircraft front, Bombardier’s partnership with Airbus on the plane formerly known as the C Series is already starting to pay dividends.

On Tuesday, JetBlue unveiled firm plans to order at least 60 of Airbus’s A220 jets — the new name for the former C Series aircraft. The sale is the first since Airbus took control of the program last week from Bombardier.

“The C Series is now in stronger hands with Airbus, and we just got an illustration of that yesterday,” Murray said. “Airbus’s involvement will likely drive additional orders. Maybe it’s better for Bombardier to own a smaller piece of a more successful program.”

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