This Could Send Bombardier Stock Soaring
Just as a famous reggae song promises, Bombardier, Inc. (TSE:BBD.B) can see clearly now the rain has gone. The clouds that have stifled its performance in the markets have certainly started to clear and the good news is that the optimism is not the result of a Canadian government subsidy. Surely that is still in the works, but the company can actually rely on favorable market forces that have brought Bombardier stock back above $2.00 per share.
Indeed, not even those who saw Bombardier’s potential months ago, myself included, could have predicted such a sharp climb. Neither Ottawa nor Bombardier appears in a hurry for subsidies: the former would rather avoid the political fallout and the latter would rather, well, do the same. But as Bombardier said, it doesn’t need it.
Has Bombardier Stock Finally Bottomed?
Indeed, Bombardier is making noise where it counts: on the tarmac and in the skies with its “C Series” airliners. Several airlines, from the launch customer Swiss Air to Air Canada to Delta Air Lines, have shown the right kind of interest in Bombardier—the kind that comes with dollars attached. Bombardier has actually managed to threaten the established markets of the standard airliner for carriers worldwide: the Boeing “737” and Airbus “320” series.
Such is the efficiency and performance of Bombardier’s C Series that Boeing plans to upgrade its Boeing “737 Max” to make sure it does not lose market share. Bombardier is also expected to emerge as the winning bidder to supply 125 C Series planes to Delta Air Lines. (Source: “Bombardier Near Deal to Sell Up to 125 Jetliners to Delta,” The Wall Street Journal, April 14, 2016.)
That’s a potential $10.0-billion contract and it would lift the C Series’ potential even further. Such domestic-focused airlines as JetBlue, Virgin America, or Air Alaska might start to consider the C Series if only because they compete on the same routes as Delta in North America.
It’s true that in order to compete against Boeing and Airbus—not to mention Brazil’s Embraer, which is even closer to Bombardier in size—major discounts will be necessary. However, that is expected. Each “CS100” aircraft from Bombardier retails for about $80.0 million. In the case of Delta, the discount could reach 50%, according to analyst Kevin Chiang of CIBC Capital Markets. (Source: “Bombardier stokes CSeries speculation by fast-tracking earnings date,” BNN, April 26, 2016.)
But Bombardier is not going to worry about discounts. The company needs revenue to support the C Series program. The more sales, the easier and cheaper it becomes to make the planes.
Perhaps even more crucial a priority is earning the credibility of the airline industry. This will not only benefit C Series sales, but it will also make it possible for Bombardier to expand and plan future models.
The Bottom Line on Bombardier Stock
The first of these has already entered the radar and it is a 180-passenger version of the C Series. Meanwhile, Delta and Air Canada could confirm the order on Friday at the annual meeting of shareholders.
This is going to be a major catalyst for Bombardier stock, which could easily soar well above its current $2.00-per-share price tag. The order will also help persuade other airlines to pay more attention to the C Series.