Bombardier Debt Climbs, Deliveries Drop during Covid

 - November 5, 2020, 11:17 AM
Global 7500 deliveries are accelerating, pushing up Bombardier's business aircraft revenues even as the manufacturer saw mounting pandemic-related costs.

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

The Covid-19 pandemic continued to take its toll on Bombardier as deliveries fell seven units to a total of 24 in the third quarter. The company further has taken roughly a $2.25 billion hit on liquidity, putting it in a position to be $4.5 billion in debt after it sheds its remaining non-business aviation activities.

Releasing the airframer's third-quarter results this morning, Bombardier president and CEO Eric Martel noted the “broad and deep impact on the global economy and in our industry,” but said he sees stabilization for now with more encouraging signs long-term.

On the positive side, Bombardier’s business aircraft revenues climbed 10 percent in the most recent three months to $1.225 billion, thanks to the delivery of eight Global 7500s. That delivery number is anticipated to grow some 50 percent to about 12 in the fourth quarter, positioning the business aviation unit for further revenue expansion and near break-even on cash flow.

In the third quarter, Bombardier delivered 13 Globals, up from nine a year ago. But the nine-month tally of 31 Global deliveries lagged the 33 handed over in the first nine months of 2019. 

Also, the nine Challenger deliveries were down by nearly half of the 17 handed over in third-quarter 2019. For the year so far, 32 Challengers have been delivered, compared with 48 in the same period last year. Martel, however, noted that Challenger sales activity strengthened in the third quarter.

Just two Learjets were delivered in the third quarter, down from five a year ago. Seven have been delivered through the first three quarters of the year, compared with nine a year ago. In total, Bombardier delivered 70 aircraft through the first three quarters, a 20-aircraft delta from a year earlier.

Martel said Bombardier would remain at the lower delivery totals into the next year, predicting between 100 and 120 business jet shipments next year. This compares with the 142 handed over in 2019.

The Global 7500 will account for a significant chunk of next year’s totals, with Martel estimating about 35 would be delivered as Bombardier works through a backlog that still stretches nearly two years.

In addition, the company noted it was working with a customer on “reclaiming” 12 Global 7500 delivery positions slated for 2023. While that could cause the backlog to take a hit, Martel said Bombardier has been able to sell every freed-up delivery position and at a higher price. “The ability to remarket these aircraft at more favorable terms provides an opportunity to improve further profitability,” the company said.

However, as Bombardier continues to work through that backlog and new sales activity has suffered under the pandemic, business aircraft backlog fell from $14.4 billion at the end of 2019 to $12.2 billion at the end of the third quarter, and the company expects deliveries will outpace orders for the near-term.

As for the costs of the pandemic, Martel conceded that once Bombardier sells its transportation unit to Alstom, it will move forward as a “pure-play” business aviation company with $4.5 billion in net debt, far greater than the $2.5 billion originally anticipated. This was a direct result of lost order and delivery activity, restructuring, and other pandemic-related costs.

Martel promised to take aggressive steps to address that with details to be forthcoming early next year, following the sale of the transportation unit.

But he said handling this debt-load will require managing the interest costs and learning how to operate profitably in the current environment. Martel also said the company’s future costs are anticipated to be lower because, except for perhaps a product update, he doesn’t anticipate significant capital investment in new products in the next five years. He expects such investment would be “very minimal because we've refreshed our product line pretty much across the board."

Martel further believes cash flow will continue to strengthen with increased Global 7500 deliveries, and along with it, profitability as the company manages pricing and gains efficiencies from operational lessons learned through the ramp-up period.

When asked if the Montreal-based company would consider selling to another manufacturer “south of the border,” he said that is not in the plans.