A Bombardier employee at work at Bombardier's Laurent Beaudoin Completion Centre in Montreal on March 29.CHRISTINNE MUSCHI/Reuters
Bombardier Inc. BBD-B-T says its business is generating more cash than previously expected as the Canadian luxury jet maker shakes off recession worries and taps a strong market for private plane travel, bolstering its chances of a turnaround.
Free-cash flow – the money left over from revenue after paying costs such as interest and other expenses – is now expected to be greater than US$515-million for fiscal 2022, compared with a previous US$50-million estimate, the Montreal-based aircraft manufacturer said in a news release accompanying second-quarter earnings on Thursday. The company said working capital is coming in stronger than expected and that it is also benefiting from more interest cost savings by speeding up debt repayment.
“It’s been a fantastic quarter for us – strong demand for business jets has carried through and our team has converted opportunities to grow our backlog significantly,” chief executive officer Éric Martel said. “With every passing month of airport and flight schedule disruption, business travel becomes a more appealing option.”
After years of turmoil at Bombardier that saw it teeter on the verge of bankruptcy, Mr. Martel is trying to stage a recovery for the industrial giant that hinges on a slimmed-down business model focused solely on selling and servicing private jets. The financials reported Thursday suggest the effort is on track.
Bombardier’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at US$201-million for the three months ended June 30, a 41-per-cent improvement over the same period last year. Revenue rose 2 per cent to US$1.56-billion in the quarter as the company delivered 28 new planes and tallied service and maintenance sales of US$359-million.
The aircraft maker posted a net loss of US$129-million or 48 cents a share for the three-month period. Other than its projected increase on free-cash flow, which is important because it indicates that Bombardier could be better placed to pay down more debt or handle unforeseen expenses, the company maintained its previous financial guidance. It still expects to deliver 120 planes this year and generate adjusted EBITDA of US$825-million on US$6.5-billion in revenue.
Bombardier continued to book new business in the quarter and boosted its backlog of orders not yet fulfilled by 37 per cent year-over-year, to US$14.7-billion. Its book-to-bill ratio was 1.8 during the period, meaning it is receiving close to twice as many new orders than it is currently shipping out.
The company is riding a surge in demand for private air travel during the COVID-19 pandemic, which has lured business travellers out of commercial airliners and into private jets. Many airlines drastically scaled back available flights over the past two years, pushing individuals to consider private flying options.
That trend has continued, but for a different reason. Demand for commercial flying is back in full force, causing significant delays for some travellers as airlines and airports scramble to handle the surge in passenger traffic. As a result, many people are choosing to fly privately instead to avoid the congestion at busy hubs such as London Heathrow and Toronto Pearson.
Bombardier has also benefited by the fact its billionaire clients have been less affected by the aftermath of Russia’s war on Ukraine and rising inflation than the average person.
The company faces pressure on several fronts, however, and supply chain disruption is near the top of the list. Some of its smaller suppliers have faced labour shortages and the company has dispatched a team of its own specialists to different regions to help them identify and fix any problems.
Bombardier has also brought in house some production previously done by foreign suppliers in a bid to counter that risk. The effort has created 500 jobs at its Saint-Laurent Plant 1 site in Montreal and there is room for more work to be repatriated, Mr. Martel said.
Moody’s Investors Service last month upgraded Bombardier’s credit rating to B3 from Caa1 with a stable outlook, citing what it said was the plane maker’s “continued progress” in reducing debt and its improved financial performance. The company has generated positive free-cash flow in each quarter since June, 2021, while boosting its adjusted EBITDA margin, booking new orders and repaying US$750-million worth of debt so far in 2022, Moody’s said.
“Given its strong backlog that provides good visibility on jet deliveries, the fact that the company is now structurally free-cash-flow-positive and its steadily improving leverage, Bombardier shares have become much more investable,” National Bank analyst Cameron Doerksen said in a research note. “We see significant upside for the stock.”
Bombardier’s B shares were up more than 10 per cent in late afternoon trading on Thursday.
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