Forget the Bombardier Stock Bears
Bombardier, Inc. (TSE:BBD.B) seemed to be heading for calmer skies. Bombardier stock lost 10% in Toronto, dropping to the $1.10–$1.15-per-share zone. Most analysts have attributed BBD.B stock’s poor performance to the fact the airplane maker from Montreal failed to win a big contract with United Air Lines.
Yet, Bombardier was never really in the running. Surely, United Air Lines is renewing its domestic fleet and has chosen 150-seat airliners like the Boeing “737-700.” On January 21, it ordered 40 such Boeing plans for an order worth well over $3.0 billion. The value of United’s latest order is about $2.0 billion.
As mentioned, though, the 737-700 can carry up to 150 passengers. That is the very number of passengers that a Bombardier “C Series 300” can transport from one North American coastline to the other.
The big question for Bombardier stock, then, is whether this would be a setback for BBD.B stock, considering the company was never really in the running?
The short and long answers to this dilemma are quite the same: no, on both counts. United Air Lines is a long-time Boeing customer; it received major discounts from the book and it has rather urgent fleet renewal needs. The latter issue is not a feather in Bombardier’s cap, because the C Series has suffered delays as any other new airplane. Still, there was no reason to believe that Bombardier could have secured the contract, even if the C Series twinjet remains a global contender in the mid-range narrow-body airliner market.
Bombardier, which garnered more new orders last year for its C Series, had pitched the new plane to North American airlines rather vigorously last October. (Source: “Bombardier seeks North American buyers for C Series jet,” CBC, October 13, 2015; http://www.cbc.ca/news/business/bombardier-cseries-jet-1.3270213.) Indeed, the C Series aircraft will enter service this summer and Bombardier can count on 243 firm orders for the aircraft. It has all the right cards to smash the duopoly between Boeing and Airbus in the over 100-passenger twinjet segment.
However, investors should be realistic about Bombardier’s chances of winning contracts against Boeing with such Boeing legacy airlines as United or Southwest. It’s not just a matter of nationalism or tradition; it’s business sense. 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 contain maintenance and flight training costs.
Moreover, Reuters had reported last week that Boeing was best placed to win all or part of the order for United. (Source: “Boeing’s possible deal with United Airlines could be a big blow for Bombardier,” The Globe and Mail, January 14, 2016.)
Bombardier can count on the C Series giving bearing its best fruits in 2020. At that time, the C Series becomes operational with existing customers and the new “Global 7000” and “Global 8000” business jets come on line.
The Bottom Line on Bombardier Stock
The C Series aircraft impressed airlines at the Paris Air Show last June, but failed to gather new orders because the company was facing organizational issues. Still, the C Series has 243 firm orders and 600 potential orders when options-to-buy are considered.
Delta Air Lines, for one, is considering acquiring the Bombardier C Series. Delta’s CEO said, “At the right price, it’s quite a competitive airplane, particularly given the engine technology.” Delta is giving it “a serious look,” he added. (Source: “Bombardier gets a lift as Delta shows interest in C Series jets,” Montreal Gazette, January 19, 2016.)
Should the Delta deal come to fruition, it would be the biggest sales milestone for the C Series, potentially sending BBD.B stock soaring. Indeed, at its current price, Bombardier stock could be a bargain.