A Little-Known Fact Bodes Well for Bombardier Stock
One of the best signs that Bombardier, Inc. (TSE:BBD.B) has a bullish course ahead comes from its competition. Bombardier stock is lingering in the mid-CA$1.70 range. This is great for those who bought BBD.B stock shares early this year. They will have more than doubled by now. But, even as it has moved up from its three-month low of CA$1.56, Bombardier stock is stagnating.
Bombardier stock needs a major announcement to move higher. But this is not for want of bullish potential. It’s just that sometimes in the aerospace sector, only those who understand the industry and the complex vagaries of the airline and aerospace worlds can find the proverbial needle in the haystack.
Thus, investors might benefit from some clarifications about Bombardier stock. What most know by now is that the company makes what sounds like the title of a popular Hollywood comedy from the 1980s (starring Steve Martin and John Candy). But, amid more contracts for trains—in September it won an over $1.0 billion contract in the U.K.—BBD.B shares are moving in accordance with the progress of the “CSeries” airliner.
The CSeries Represents Bombardier’s Most Ambitious Project Ever
The CSeries marks Bombardier’s entry into the 3,000-4,000 nautical mile club and the 100-150 passenger market. Airlines around the world want these kinds of planes, because they can travel long distances, use as much as 15%-20% less fuel, and land on/take off from shorter runways. This opens up the market. Airlines suddenly have more airports they can use, saving on rising user fees at the world’s major hubs. In other words, the demand for planes like the CSeries is rising.
But Bombardier has faced production delays with the CSeries. This has been one of the main factors hurting Bombardier stock. After all, the aerospace industry makes tremendous demands on capital during the development phase. It only collects when it delivers the planes. Tardy deliveries mean deferred revenue.
Yet BBD.B stock has suffered an exaggerated case of investor letdown, if not cynicism. Perhaps this is because this is the first time Bombardier has ventured in a market dominated by the likes of Boeing Co (NYSE:BA) and Airbus. This has scared many into thinking that the comparatively smaller Montreal-based company would fail against such aerospace giants.
But here’s a little-known fact. The market for the CSeries is so large that even a relatively small Japanese company has made its bold move to grab a small slice.
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Bombardier Isn’t the First, nor the Last, to Experience Delays
Mitsubishi Aircraft Corporation has designed the “MRJ” series. It’s a similar plane (actually a bit smaller) to the Bombardier CSeries. It even has the same Pratt & Whitney Canada new geared turbofan engines. It also has a launch customer, Japan’s largest airline, All Nippon Airways (ANA). The other thing it shares with the CSeries is that it’s late in the testing and—naturally—the delivery schedule for the plane. (Source: “Mitsubishi waits for right timing for MRJ100X,” Air Transport World, October 13, 2016.)
Indeed, the Mitsubishi plane is heavily delayed. Boeing also experienced delays in delivering its “787,” which cost the company billions of dollars to correct. Airbus was late with its “380.” Indeed, the vagaries of the aerospace industry in general, from stringent design and manufacturing requirements to performance requirements that are on the edge of imagination, are making delays an expected and obligatory aspect.
Meanwhile, the Bombardier CSeries is flying and ready to bring in revenue. Bombardier has over 300 planes on order. But more could be on the way, both from those who have already ordered the plane—Air Canada (TSE:AC), Delta Air Lines, Inc. (NYSE:DAL), Swiss International Air Lines AG, Air Baltic Corporation AS—and others, like Icelandair Group hf (ICE:ICEAIR). Indeed, the latter airline presents an ideal market scenario for the CSeries.
Bombardier CSeries Can Even Replace The Boeing 757
Like other airlines operating the venerable “Boeing 757″—one of the longest-range single aisle twinjets—Air Iceland is retiring them. The CSeries is an ideal substitute. It has similar range and anywhere between 15%-20% better fuel consumption per passenger. The company is moving to an all-Bombardier fleet, already using the “Q400s” to cut maintenance costs. (Source: “Air Iceland to move to an all-Bombardier fleet,” CH-Aviation, March 17, 2015.)
The CSeries would be an ideal plane to make the newly established Reykjavik-to-Montreal route. (Source: “Bombardier démarche 2 transporteurs islandais pour la C Series,” Radio-Canada, October 6, 2016.)
Therefore, the prospects for Bombardier stock are bullish. More CSeries sales are coming, which is a main driver for BBD.B stock. Meanwhile, investors are eagerly awaiting the Canadian government’s confirmation of a billion-dollar direct “investment” to help the company with the CSeries program.
Recently, the Canadian federal government hinted that the question is not whether the $1.0 billion is coming; rather, the issue is more about how the funds will be delivered and deployed. The reason that the federal aid is so important is not the dollar amount; it’s more that it shaves off risk from would-be buyers of CSeries planes. Those potential buyers have been sitting on the fence, needing assurances before walking into the boardroom to sign contracts. Bombardier stock has gathered all the necessary pieces it needs to make an enduring bullish move over the next year.