With Financials On Pace, Bombardier Weighs New Products

 - February 24, 2022, 1:28 PM
In part thanks to customer demand and production cost reductions for the Global 7500, Bombardier is on track to meet its 2025 financial targets. (Photo: Bombardier)

Bombardier, encouraged that it is on track of meeting its 2025 financial targets, believes it will have the flexibility at that time to ramp up investments on potential new products, president and CEO Éric Martel said Thursday.

Speaking during Bombardier’s virtual 2022 Investment Day, Martel provided an overview of progress the company has made over the past year towards goals set as it reorganized into a pure-play business aviation entity. Those objectives included cutting costs on Global 7500 production, ramping up aftermarket revenues, producing productivity savings of $400 million, and deleveraging its balance sheet. Through these goals, the company is on pace to reach its targeted revenues of $7.5 billion, earnings of $1.5 billion, and free cash flow of $500 million by 2025.

Last year, the company recorded $6.1 billion in revenues, earnings of $600 million, and free cash flow of $100 million, and importantly achieved progress on all of its goals.

As for the Global 7500, Martel reminded that Bombardier had cut its production costs of the flagship aircraft by 40 percent between the first and 50th delivery and is achieving another 20 percent reduction in costs from the 50th and the soon-to-be delivered 100th model. “In 2021, we turned this program into a positive EBITDA contributor, and the outlook is even better for 2022, as we continue to benefit from the learning curve improvement,” he said, adding that “this business jet is being received extremely well [on the market].”

Jean-Christophe Gallagher, Bombardier's executive v-p of services and support, and corporate strategy, meanwhile highlighted the company’s progress toward its ambitions to bring in $2 billion in aftermarket revenues by 2025 and have that account for some 27 percent of Bombardier’s overall revenues.

This is an important revenue stream, he said, because it is predictable and more immune to industry downturns. To reach that target, Bombardier must capture some 50 percent of the aftermarket business of its fleets, which currently combine for about 5,000 aircraft. Bombardier already has seen a jump in that business, accounting for just under $1 billion representing 35 percent of potential aftermarket revenues in 2020 to reaching $1.24 billion, representing 39 percent, in 2021.

Bombardier anticipates greater gains as it continues to bring more service facilities online worldwide—four major expansions in the U.S., Singapore, Australia, and London are set to open this year alone. Gallagher did not rule out additional expansions, including potential acquisitions, as it looks further to reduce its reliance on authorized service stations and move into new geographic regions.

Pertaining to other company objectives, Bombardier reduced its overall debt by $3 billion, saving more than $225 million in interest payments, and created 36 months of “debt runaway, giving us time and space to execute our operating plan,” Martel informed. The company has also identified $250 million of cost reductions, more than half of the $400 million targeted by the end of next year.

As a result, this is building in flexibility for future investments, along with further debt reduction, Martel said.

“We must keep evolving. We're taking the time to evaluate our next moves carefully and to be strategic in our plans,” he stated. Sustainability will influence its future products, Martel told investors, stressing a significant portion of its research and development budget is going towards such initiatives.

Martel added, however, “There’s also room for us to further tap into our technology investments from the Global 7500 and integrate them into our portfolio like we did with the Challenger 3500.”

Noting that the 3500, unveiled in September as the next iteration of the Challenger 300/350 family, has been well received, Martel remarked there will be “that type of investments.” With its Globals refreshed and Learjets retiring, many point to the Challenger 650 as the next possible aircraft to be updated.

But Martel continued, “Eventually Bombardier will face the decision—and it's going to be a capital allocation discussion—about where and which platform we want to develop. The trigger here for us is clearly what our customers are expecting moving forward.”

Bombardier is monitoring the development of technologies, such as electrification, and looking at refined aerodynamics to produce efficiencies and more sustainable possibilities, he said. ”We will see what technologies are mature enough.”

As for timing, the market will dictate that he said, but added, “By 2025, we will have that flexibility. We're in a good place. If we need to, we will have the flexibility and capability to respond to our competitor and be able to offer what our customer will look for.”