Bombardier Stock Has Big Potential
Bombardier, Inc.’s (TSE:BBD.B) “CS300” aircraft has received the green light from Transport Canada following the December approval of the company’s “CS100.” This recent approval was just a formality, of course, but Bombardier stock has broken through a tough price ceiling this week, closing at $2.16 per share. This means that year-to-date, Bombardier stock has gained more than 61%.
I hope you’re one of the lucky ones who have been following my coverage on Bombardier stock for the past year…
I never doubted Bombardier stock’s potential. Bombardier remains Canada’s main industrial company. Canadian federal and provincial authorities were never going to let Bombardier fail.
As it happens, the company has managed to deliver the first CS100 airliner to its launch customer, Swiss Global Air Lines, a few weeks ago. It will formally enter service this Friday.
The Real Scoop on Bombardier Stock
Bombardier stock fell below $1.00 per share last winter, when many investors, some analysts, and even customers feared the company might abandon its “C Series” program in order to cut the losses it accumulated through delays and slow sales. However, these same investors and analysts conveniently forgot that the C Series is an excellent product. The airlines that have ordered it like the fuel burn savings, quiet operation, range, and cabin amenities the aircraft offers. The CS300 certification, meanwhile, has further validated the C Series project.
The CS300 shares 99% of its characteristics with the CS100 model, yet it is a different plane that can address an entirely different market. The CS300 has a range of more than 3,300 nautical miles and can cruise at higher altitudes (allowing for better fuel economy) at a faster speed while carrying 24 more passengers. This puts it straight into competition with the Airbus “319” and Boeing “737.” Bombardier now expects to deliver its first CS300 aircraft to airBaltic in Latvia before the end of 2016.
Two planes from one main design—this is where the C Series program starts to make sense and where Bombardier stock starts to pick up altitude as well.
The Bombardier C Series has not yet received new orders during the Farnborough air show in the U.K. this week. While the company did not expect big sales at this venue, some of the favorable momentum has carried over to other Bombardier products, as the company sold three of its “Q400” turboprops.
Meanwhile, Farnborough has given Bombardier a chance to show off its C Series to Chinese buyers who have attended the show in great numbers this year. So far, Chinese airlines have remained “elusive,” but Transport Canada’s certification of the CS300, with its long range that’s ideal for the domestic and regional Chinese markets, should help getting these buyers’ attention. According to the president of Bombardier Commercial Aircraft, Fred Cromer, the company can expect “several orders” in the C Series airliner family, including from Europe and Asia, in the latter half of 2016. (Source: “Bombardier under less pressure to ink deals at air show —executive,” Yahoo! Finance, July 6, 2016.)
Meanwhile, as deliveries continue, Bombardier collects from customers and the higher cash flow could help to reduce its $9.5-billion debt. Both Air Canada and Delta Air Lines, which have placed large orders, may buy the C Series, which now has the chance to show off its potential in service. It is no longer an “unknown” entity; customers can order a C Series airliner with confidence.
So far, Bombardier has 370 firm orders for the new plane, which has put the Canadian manufacturer in a position to address a growing section of the market, which needs range and performance, but less capacity than the offerings from giants Boeing and Airbus. Bombardier expects this market to generate demand for some 7,000 such planes in the next 20 years. At some $50.0 million–$80.0 million apiece, on average, that’s $350 billion–$560 billion—quite a bit more than the $5.0 billion or so for the initial development costs.
The C Series’ entry into service could also change the market itself, with airlines expressing more demand for medium-haul and -sized planes like the C Series, which has larger configurations already in the plans. There are even rumors that the Canadian government and Bombardier will soon come to an agreement for government aid. The aid might take the form of direct investment or better, it could come in the form of a permit for Porter Airlines, an ideal customer for the C Series (and already operating an all-Bombardier fleet), to fly the C Series from Toronto Island’s Billy Bishop airport. (Source: “Porter Airlines to add to Q400 fleet with new order,” The Toronto Star, July 12, 2016.)
Note that Bombardier has not begged for government help, though its competitors receive government assistance in the form of direct ownership, as is the case for Airbus, or military contracts, as is the case for Boeing.
The Bottom Line on Bombardier Stock
As for Bombardier stock, after sitting in the doldrums, it has already experienced a notable rally as it moved from about $1.95 to $2.18 this week and further upside could be ahead.