Bombardier Stock: This Is Why the Bombardier, Inc. Bears Had It All Wrong
Bombardier Delivers First C Series and Begins New Era
Bombardier, Inc. (TSE:BBD.B) finally fulfilled its promise to deliver, on time, its first “C Series” airliner to Swiss Global Air Lines, a subsidiary of Deutsche Lufthansa AG.
It has taken 12 rather eventful years to reach this milestone. As it turns out, that’s about how long it takes to develop a new airliner these days. The Boeing “787” took at least as long as the C Series by the time it was ready for delivery and the start of commercial operations.
Bombardier stock continues to trade at just less than $2.00 per share, but the fact that it bounced back immediately after dropping to the $1.75 level in the Brexit fallout shows that $1.95–$1.96 is the new plateau. Bombardier was trading at approximately $1.25 for most of March and April of this year, plunging to $0.87 in February.
Indeed, Bombardier stock has gained more than 45% since the start of the year. Are we surprised? No, this was expected. Frankly, the surprise is that it hasn’t gone higher. After all, Bombardier has achieved nothing short of phenomenal in making the first all-new 100–150 passenger aircraft in almost 30 years.
Launched in 2004 and put into production in 2008, the C Series program has contended with many problems. The biggest of these had little to do with Bombardier. The program was launched just as the subprime financial crisis hit the markets, discouraging would-be customers and delaying the program. The development costs doubled to $5.4 billion, but further delays pushed the program three years beyond the originally promised delivery schedule. Although aerospace engineers have powerful computers and technology at their disposal, taking a new airliner from drawing board to tarmac has become more complex and expensive than ever.
Many analysts have complained about the C Series program’s delays, as if Bombardier were the only company to suffer them. Delays are the norm in this business. Bombardier stock may have suffered but now is the time to put this stock on your radar, because rewards could be ahead.
As late as last December, some analysts still doubted that Bombardier would deliver the C Series, fearing or implying that the company would have to scrap the program or even hand it over to Airbus. (Source: “Bombardier says it has no plans to kill CSeries after approaching Airbus,” CTV News, October 8, 2015.)
Eight months later, the doubters have some tasty crow to eat. Bombardier, against the odds, has challenged nothing less than the Airbus and Boeing (NYSE:BA) hegemony of the mid-size airliner market typified by the “A320” and “737” families, respectively. The Swiss national airline will start flying the C Series on regular service between Zurich and Paris starting on July 15. Manchester, Prague, and Budapest will also be among the first destinations served by the “CS100” jet. Bombardier said the C Series offers the quietest cabin and best fuel consumption in its category.
It’s a fact that Bombardier has suffered financially and BBD.D stock has dropped to less than a quarter of its value in September 2008, before the big crash. The government of Quebec has invested $1.0 billion to help Bombardier bring the C Series program to a productive conclusion and a series of big orders in 2016 have done the rest (including orders from Delta Air Lines and Air Canada) to ensure the C Series gets the attention it deserves from carriers worldwide.
Bombardier has so far received more than 300 firm orders—which go up to 800 if we consider options—for the CS100 and CS300 (130–160 seats), the largest C Series that has not yet received the green light on production.
I believe that the C Series airliner will perform as well as advertised and that it will get many more orders over the next few months. Customers, concerned by delays, did not place orders as expected. Now, however, there is concrete evidence that the plane is ready for business. Bombardier stock could start to see some lift in the next few weeks.
Image source: Flickr; Image copyright 2014, Patrick Cardinal