By Frederick K. Larkin | February 9, 2023 Estimated reading time 4 minutes, 58 seconds.
During 2022’s final quarter, Bombardier’s total revenues increased 50 percent year-over-year to US$2.7 billion from US$1.8 billion. Revenues related to aircraft sales increased by about 60 percent to US$2.2 billion from US$1.4 billion. During that period, Bombardier delivered 49 Challenger and Global aircraft – a 36 percent increase from the 36 units delivered in the year-earlier quarter. Also during the quarter, 29 Globals were delivered, representing a 60 percent increase over the 18 examples delivered during Q4/21.
The company’s profitability during Q4/22 was strong. The gross profit increased by 47 percent to US$460 million in Q4/22 from US$313 million in Q4/21. The higher margins of the Global models were a key factor. Operational efficiencies were assisted by the production cost reduction learning curve on the flagship Global 7500 program. Pre-tax income improved to US$120 million in Q4/22 from US$112 million during Q4/21.
The higher earnings and associated cash flow has enabled a further strengthening of the company’s balance sheet. At the end of 2022, Bombardier’s net debt totaled approximately US$4.3 billion. That is US$1.1 billion lower than the level a year earlier. Impressively, the company has reduced its debt load by US$4.1 billion since the end of 2020. Bombardier does not have any significant debt maturing until March 2025.
Bombardier’s outlook remains positive. The order backlog at Dec. 31, 2022, stood at US$14.8 billion. While that was slightly below the US$15.0 billion level at Sept. 30, 2022, it is 21 percent above the US$12.2 billion level at Dec. 31, 2021.
The sizeable backlog represents about two years of production of both Challenger and Global models. It consists of a strong mix of traditional customers including corporations, families, governments, and fleet operators. The latter group, including VistaJet, NetJets, and Flexjet, represents about 20 percent of the current backlog. Looking forward, the company expects to see the book-to-bill ratio stabilize around the 1:1 level.
Bombardier has provided positive guidance for its financial performance in 2023. It is looking to deliver more than 138 aircraft, attain revenues in excess of US$7.6 billion and generate more than US$250 million of free cash flow. This bodes well for further debt reduction.
Three situations related to Bombardier are worth mentioning. The first being the upcoming transfer of Global production from Downsview Airport in Toronto to Pearson Airport in nearby Mississauga. Given that the Global family represents a significant portion of the company’s revenues and gross profits, it will be important that the transition be completed without any complications. Management has stated that the construction of the new facility is on schedule and that the transfer of production is expected to take place during August 2023.
The second situation is the continuing improvement in the strength of the balance sheet. While significant debt has been retired and/or refinanced, the issuance of new equity might be an option to be considered. While such an action is pure speculation at this time, equity funding might enable timely debt retirement should there be significantly higher interest rates. Furthermore, such cash might enable the continued expansion of its maintenance facilities around the world or be used for the development of new aircraft models.
The third situation is the potential growth for Bombardier’s defense related business. While the company has delivered many airframes for special missions such as surveillance, the conversion work has primarily been performed by others. Bombardier now has a defense unit that is dedicated to providing turnkey solutions for military customers around the world.
With an impressive order backlog, continuing high demand for its products, steady cash flow generation, and a stronger balance sheet, Bombardier’s financial turnaround continues to be an exciting story to monitor.
