Bombardier, Inc. (TSE:BBD.B) is Canada’s largest industrial group. Bombardier stock was starting to enjoy a rally in the last days of the year, reaching $1.39, but it is now back in the $1.10–$1.15-per-share zone after losing two $3.0-billion sales prospects. Had Bombardier been successful, it would have secured the company’s “CSeries” twinjet as a global contender in the mid-range narrow body airliner market.
Unfortunately, both United Continental Holdings Inc’s (NYSE:UAL) subsidiary United Air Lines, Inc. and Southwest Airlines Co (NYSE:LUV), Bombardier’s main competitors, have chosen the latest model of the “Boeing 737” family. Thus, the Montreal-based BBD.B stock absorbed two losses in the same day. Bombardier, which garnered more new orders for its CSeries last year, had pitched the C-Series to the two North American airlines rather vigorously last October. (Source: “Bombardier seeks North American buyers for CSeries jet,” CBC, October 13, 2015.)
Is It Time to Give Up on Bombardier Stock?
Bombardier stock lost some 67% of its value in 2015 because of financial challenges related to the CSeries delays. Nevertheless, the CSeries aircraft will enter service this year and Bombardier can count on 243 firm orders for the aircraft, which is a contender to smash the duopoly between Boeing and Airbus in the 100+-passenger twinjet segment.
Southwest Air Lines Co was always going to be an ambitious target, given the Texas-based airline—and the model for low-cost carriers everywhere—has long been a Boeing 737-only company. By acquiring a Bombardier, Southwest would have had to break one of the cardinal rules of its successful model—relying on a single type of aircraft to minimize maintenance and flight training costs.
Moreover, Reuters reported last week that Boeing was best placed to win all or part of the order for United Air Lines, Inc. (Source: “Boeing’s possible deal with United Airlines could be a big blow for Bombardier,” The Globe & Mail, January 14, 2016.)
Bombardier, which has held a dominant slot in the regional turboprop and jet airliner market, is entering a higher niche with the CSeries, a Boeing 737 and “Airbus 319” competitor. Nevertheless, the capable twinjet has failed to gather new orders due to industrial and organizational issues at Bombardier itself.
The CSeries is attractive. So much so, that if Boeing or Airbus were to invest in its production, they would gain a fully developed aircraft with target-beating performance at a bargain price. The CSeries should obtain certification from Transport Canada by the end of 2015, reviving customer interest.
Bombardier’s revival should bare its best fruits in 2020, as the CSeries becomes operational with existing customers and the new “Global 7000” and “Global 8000” business jets come on line.
However, even if the company had won the contracts, Bombardier stock would have seen more of a rally had it resolved the backlog for the CSeries aircraft, which remains intact.
The aircraft impressed airlines at the Paris Air Show last June, but it failed to get new orders because the company was facing organizational issues. The CSeries, after all, has 243 firm orders, as mentioned earlier, but the total is boosted to 600 potential orders when options-to-buy are considered.
Sébastien Mullot, director of the CSeries program, is satisfied with the number of orders for the CSeries and stresses that within the regional civil aircraft market, Bombardier is a new player as opposed to Airbus and Boeing, which have delivered thousands of regional aircraft. He also cited talks with several potential buyers in the Americas, the Middle East, and Asia, but gave no details. (Source: “Bombardier accélère la production du CS100, Delta intéressée,” TVA, January 19, 2016.)
The Bottom Line on Bombardier
Delta Air Lines, Inc. (NYSE:DAL), for one, is considering acquiring the Bombardier CSeries. Delta’s CEO, Richard Anderson, noted, “At the right price, it’s quite a competitive airplane, particularly given the engine technology.” Anderson added that he will be giving it “a serious look.” (Source: “Bombardier gets a lift as Delta shows interest in CSeries jets,” Montreal Gazette, January 19, 2016.)
Should the Delta deal come to fruition, it would be the biggest sales milestone for the CSeries and it could very well send Bombardier stock soaring. Indeed, at the current price, BBD.B stock is a bargain.