More Upside for Bombardier Stock?
Some traders and analysts may still believe that Bombardier, Inc. (TSE:BBD.B) is going to drop in the short term. However, even in an exercise of speculation and educated guesswork, the evidence suggests a more optimistic course for Bombardier stock. Bombardier shares may not be quite ready to reach operating altitude, but they are in takeoff mode.
Bombardier stock has almost tripled in value since it touched a floor of $0.72 per share last February. Those who have been reading Profit Confidential know that at that price, Bombardier was ridiculously valued—ridiculously low, that is. The short sellers on Bombardier stock have been warned.
Short selling is a maneuver by which an investor borrows a share thinking that its price will fall, expecting to buy those shares later at a lower price. If you are planning to short Bombardier stock, you would be better off hoping to buy shares at a lower price rather than expecting because Bombardier has too much lift now.
Bombardier shares continue to trade around CA$2.00 on the Toronto Stock Exchange. That still makes them cheap.
In a few weeks, however, Bombardier will start delivering its first “CS100” airliner to its launch customer, Swiss Global Air Lines, a Lufthansa subsidiary. Bombardier has already released an image of the first CS100 coated in Swiss Global Air Lines livery. (Source: “First Bombardier C Series passenger jet is unveiled,” Belfast Telegraph, May 31, 2016.)
The new plane begins regular commercial service on July 15, serving the popular Zurich to Paris route. Other airports soon to be served by the Swiss “C Series” are Manchester, Prague, and Budapest, gradually replacing the current Avro “RJ100” that has been operating those routes, culminating with Zurich–London in the first quarter of 2017.
The sight of the first customer airplane in full livery has come at a price, but it’s the moment Bombardier was aiming for and it’s finally here. It confirms the plane has left the development phase and entered full production with actual deliveries and funds coming in as a result. There are no more doubts about the C Series.
Just last year, some analysts were debating the possibility that Bombardier should—or even would—scrap the C Series program. (Source: “Bombardier says it has no plans to kill CSeries after approaching Airbus,” CTV News, October 8, 2015.)
Swiss Global accounts for a small fraction of the current delivery schedule. However, it is a crucial fraction, as potential customers will be more willing to sign on the dotted line. Air Canada and Delta Air Lines have already made the move. Both will likely order more, as will their competitors. That’s because Bombardier, low share price and all, has proven to be a serious contender to break the Boeing Co (NYSE:BA) and Airbus duopoly in the airliner industry.
Moody’s, the famous—or infamous—rating agency, ready to pounce against anything but the subprime mortgage bonds, has seen the light when it comes to Bombardier. (Source: “Bombardier Inc.’s Delta sale signals ‘beginning of the end’ of Boeing-Airbus duopoly: Moody’s,” The Financial Post, May 25, 2016.) It will take some time, but the end of the long Boeing-Airbus duopoly is finally upon us, according to Russell Solomon, Moody’s senior vice president.
Not since the early 1990s, when Boeing bought McDonnell Douglas, have there been more than three major contenders for the medium- to long-haul airliner market. In the 1960s and 1970s, airlines had many more manufacturers from which to choose. The usual suspects faced solid competition from the DC series of airliners, Lockheed, Hawker Siddley, Ilyushin, Tupolev, Dassault, or even Convair.
Until Bombardier—and Embraer—came on the scene with the C Series, an airline would choose between an Airbus “320” series and a Boeing “737” for its medium-haul 120–150-passenger service. Over the next 10 years, meanwhile, Bombardier and Embraer, which will deliver its C Series competitor later, could grab up to 10% of the 100–150-seat airliner market.
For the record, that category represents the most intense and competitive segment of the airliner market. Boeing and Airbus have thousands of such airliners in their order backlogs. Soon, Bombardier will be winning over some of those customers.
Bombardier’s problems—and its share price—have reflected the difficulty of even considering competing in the Boeing-Airbus duopoly. It was always going to be ambitious, but Bombardier is close to the finish line and it’s time to get into Bombardier stock.
Bombardier will soon include in its financial statements a provision of $500 million for 127 aircraft recently sold—yes, at a loss, but a necessary one in order to get more buyers—to three customers, including Delta Air Lines and Air Canada. These losses are related to the “introductory price” granted to buyers and higher assembly costs at the start of production.
Finally, while the C Series has stolen a lot of investors’ attention when it comes to Bombardier’s performance, the company is also one of the world’s top makers of business jets. Bombardier believes the business jet market will recover soon, especially in North America and Europe, further boosting revenue.