By Frederick K. Larkin | April 27, 2023 Estimated reading time 5 minutes, 41 seconds.
During 2023’s first quarter, Bombardier’s total revenues increased 17 percent year-over-year to US$1.45 billion from US$1.25 billion. Revenues related to aircraft sales increased to US$1.02 billion from US$868 million. During Q1/23, the OEM delivered 22 aircraft, including eight Challengers and 14 Globals. That was an improvement from the 18 aircraft (six Challengers and 12 Globals) delivered during the year-earlier period.
Revenues related to aftermarket services, such as maintenance and modification work, grew by 17 percent year-over-year to US$424 million from US$361 million. This is important, as the aftermarket is expected to provide a growing contribution to Bombardier’s top line in future years. It is worth noting that the US$424 million is up 58 percent from the US$269 million realized in the first quarter of 2021.
Bombardier’s Q1/23 operating income (defined as Earnings Before Interest and Taxes) increased by 65 percent to US$140 million from US$85 million in Q1/22.
Financial deleveraging remains a priority for the company, and its balance sheet continued to strengthen during the latest quarter. Long-term debt declined by US$400 million to US$5.6 billion, and the company has approximately US$1.4 billion of liquidity on hand.
Bombardier’s outlook remains positive. The order backlog at March 31, 2023, stood at US$14.8 billion – unchanged from the level three months earlier. That number represents approximately two years of production of both Challenger and Global models. It reflects a mix of traditional customers including corporations, families, and fleet operators such as VistaJet, NetJets, and Flexjet. The latter group has been more active this year than it was a year ago.
Some industry observers are concerned about the negative impact that a recession might have on the order flow. Bombardier’s management noted that large cabin corporate jets have retained customer demand during past periods of economic weakness. That was a key reason behind the discontinuation of the small cabin Learjet models early last year.
In the meantime, Bombardier says that demand for its aircraft remains stable within both North America and Europe, and is increasing within the smaller Asian market. Incidentally, the global inventory of pre-owned business jets is approximately five percent of the operating fleet. That is well below the traditional availability ratio of about 10 percent.
In the near term, three situations regarding Bombardier are worth monitoring. The first is the upcoming transfer of Global manufacturing from Downsview Airport in Toronto to Toronto Pearson International Airport in nearby Mississauga. Given that the three current Global models (5500, 6500, and 7500) represent a significant portion of the company’s revenues and operating income, the transition of the production will have to be executed flawlessly in order to prevent any reduction in aircraft output or delay in customer deliveries. The company has stated that the project is proceeding well and that the move is expected to take place during this year’s third quarter.
The continuing improvement in the health of the balance sheet is a key component of the company’s impressive financial recovery. While significant debt has been retired and refinanced, the issuance of new equity may be an option worthy of consideration in the future. Although such a move is pure speculation today, equity funding might enable timely debt retirement in the face of significantly higher interest rates. As well, such a cash infusion might be used to support the continued expansion of its service operations around the world or be available to assist with the development of new products.
Bombardier’s defense business has interesting potential. Over many years, it has delivered numerous aircraft to military customers. Surveillance aircraft have become a priority for many armed forces around the world and Bombardier now has a dedicated unit that is able to address this market. The Challenger 650 and Global 6500 have already been selected by a number of air forces, and good potential exists for additional orders.
These Q1/23 financial results confirm that Bombardier is on track to achieve its targets for 2023 and 2025 that were outlined during the Investor Day event one month ago. With a healthy order backlog, continuing high demand for its products and services, and a strengthening balance sheet, Bombardier’s financial turnaround continues to be an impressive story.
