Delta Order Boost for Bombardier Stock
Bombardier, Inc. (TSE:BBD.B) is now in a much better place than at the start of the year. Bombardier stock has settled at a new plateau of $2.00 after trading at about half that amount for much of this first half of 2016.
Much of Bombardier stock’s recent success has come from the company’s sale of 75 “C Series” airliners to Delta Air Lines, Inc. (NYSE:DAL). The U.S. carrier has an option to purchase 50 more.
Since that announcement in late April, rumors surrounding Bombardier’s sales have continued. The latest bullish prospect being discussed involves Bombardier talks with JetBlue Airways Corporation (NASDAQ:JBLU) about another potential C Series deal.
There have also been rumors of Bombardier supplying C Series aircraft for fleet of airliners for a brand new Iranian airline.
Yet, despite all the bullish prospects, Bombardier’s stock has not managed to close much above $2.00 per share.
Indeed, while people recognize Bombardier for its airplanes, in its home market of Canada, Bombardier is synonymous with streetcars and subway trains.
In Toronto, Canada there have been significant delays affecting a new 12-mile light rail line, which is supposed to open for the public by 2021. The City of Toronto has not received any prototype yet. The city of Edmonton, in Alberta, Canada, some 2,000 miles west of Toronto, also has Bombardier’s light rail transport on order and is experiencing the same delays.
Unfortunately, the delays are having a snowball effect. Bombardier’s rail division seems to have too many projects and no way to fulfill them.
To Donald Trump’s delight, Bombardier said it knows the source of the problem, attributing it to the faulty manufacturing of parts at its Mexican facility. That might be mildly reassuring, as it shows the company understands the problem and can address it. To solve the problem, Bombardier has decided to add assembly lines in Mexico, while also manufacturing some of the key problem components at its plant in La Pocatière, Quebec. (Source: “Bombardier Inc’s problems go far beyond planes: How a failure to deliver streetcars on time has ripple effects across Canada,” The Financial Post, May 9, 2016.)
Still, while Bombardier may be suffering some reputation loss with Canadian commuters, Bombardier’s stock performance relies much more on the sales of its airliners—especially the C Series that Delta Air Lines turned into a hit after it suffering from production delays and financial losses. (Source: “Bombardier halves promised TTC streetcar delivery in latest delay,” The Globe and Mail, April 25, 2016.)
Indeed, the Delta deal appears to have woken up Bombardier. Now, the rumors of potential sales are multiplying from the United States to Europe, the Middle East, and China. Bombardier management has conceded that the Delta order has pushed talks with Chinese carriers. (Source: “Bombardier’s Delta Deal Spurs Airline Talks,” AirWise, May 6, 2016.)
This is a bullish development.
China’s air traffic is growing faster than anywhere else. The current slowdown has not reduced demand. Airbus and Boeing are counting on Chinese sales. Boeing has predicted demand for 4,630 new single-aisle planes in China over the next 20 years. (Source: Ibid)
Rising passenger traffic beyond the main hubs of Beijing or Shanghai make the C Series an ideal plane to handle traffic in the mid-tier cities, thanks to its long range and its 100–150-seat capacity. Chinese travelers don’t like the smaller regional jets, but Bombardier offers a valid alternative, because the C Series is more like a Boeing “737” or Airbus “319” compared to Bombardier’s previous offerings.
Two aspects bode well for Bombardier sales in China: One is a 2014 letter of intent from Zhejiang Loong Airlines to buy 20 of the “CS100.” The second is that next June, Swiss Airlines will take delivery of the C Series, which will begin official service, showcasing its potential and attracting more customers.
The market has already seen the effect that C Series orders has on Bombardier stock. And Bombardier is already addressing its Canadian ground transportation supply issues, which should have a gradual favorable or stabilizing effect on Bombardier stock. Any additional C Series orders will help turbocharge Bombardier shares.
The bottom line for investors, once again, is that Bombardier stock is cheap at the current price, given its potential. Consider that at the height of the delays and C Series uncertainty in 2013–2014, Bombardier stock was trading between $4.00 and $5.00 per share. That’s more than double its current amount.