Estimated reading time 6 minutes, 56 seconds.
For more than a year now, Bombardier has been reporting results that have reflected its efforts to enhance its product line, expand its services, increase its operating efficiencies, and reduce its financial leverage. Further evidence of the progress being made on these fronts was provided with the release of the company’s Q3/22 numbers.
During the seasonally weak third quarter, Bombardier’s total revenues were up slightly to US$1.455 billion from US$1.449 billion in Q3/21. That number reflected a slightly different mix of aircraft deliveries, as well as a stronger contribution from the aftermarket business.
Revenues related to the sale of aircraft during Q3/22 were nearly unchanged from the US$1.1 billion achieved in the year-earlier quarter. During the most recent quarter, Bombardier delivered 12 Challenger and 13 Global aircraft. The year-earlier quarter saw four Learjet, eight Challenger, and 15 Global aircraft delivered. Learjet production ended in early 2022.
Revenues related to aftermarket services, such as aircraft maintenance and modification work, grew by 20 percent year-over-year from US$310 million to US$372 million. This is important, as the aftermarket is expected to provide a growing contribution to the company’s top line in future years.
The mix of aircraft sold and the increased aftermarket activity contributed to the company’s improved profitability during the most recent quarter. The gross margin rose to 19.9 percent in Q3/22 from 14.6 percent in Q3/21, and from 12 percent in Q3/20. The improved margins were enabled by both targeted production cost reductions and the maturing flagship Global 7500 program.
The improved earnings performance resulted in strong cash flow generation during Q3/22. This has allowed a meaningful improvement in the health of Bombardier’s balance sheet. At the end of Q3/22, the company’s gross debt totalled approximately US$6.184 billion. That is down US$0.863 billion from the start of the year. Pro-forma liquidity (cash and cash equivalents) stood at a healthy US$1.345 billion at Sept. 30, 2022. Furthermore, the company debt reduction program is ahead of schedule and it does not have any significant debt maturing until December 2024.
It is also important to realize that new order deposits and customer progress payments are largely funding the working capital requirements related to aircraft production. This further reduces stress on the balance sheet.
Bombardier’s outlook remains encouraging. Despite the conflict in Eastern Europe and global economic concerns, business aviation trends remain positive. Business jet utilization has rebounded to pre-pandemic levels in both North America and Europe and is forecast to increase further. The high demand for bizjets is demonstrated by the fact that the number of aircraft available in the secondary market remains low. As a percentage of the active fleet worldwide, the number of pre-owned aircraft for sale is estimated to be around four percent. The typical availability ratio is approximately 10 percent.
That strong level of demand is reflected in Bombardier’s latest backlog numbers. Thanks to an impressive Q3/22 book-to-bill ratio of 1.3X, its order backlog reached US$15 billion at Sept. 30, 2022. That was up from US$14.7 billion at June 30, 2022; US$13.5 billion at March 31, 2022; US$12.2 billion at Dec. 31, 2021; and 34 percent higher than its US$11.2 billion level a year earlier.
The sizeable backlog represents approximately two years of production of both Challenger and Global models. Furthermore, it is comprised of a healthy mix of traditional customers that include corporations, families, fleet operators, and governments. Fleet operators (such as VistaJet, NetJets, and Flexjet), represent approximately 20 percent of the current backlog.
An advantage of such a large backlog is that it gives Bombardier confidence in its production scheduling. Management remains mindful of the time required to deliver an aircraft to its buyer from the moment that it is ordered. This influences a particular model’s rate of production, as well as its selling price. Bombardier has decided to be conservative with its production rates, but not in a manner that discourages new orders due to a lack of aircraft availability. It continues to closely monitor its supply chain and currently does not anticipate any production delays. Bombardier expects the number of aircraft delivered during 2023 to be 15 to 20 percent greater than the 120+ units due to be delivered during 2022.
A key aspect of Bombardier’s growth strategy is to more aggressively approach the aftermarket business. There are approximately 5,000 Bombardier business jets in service, including Learjets, Challengers, and Globals. During 2020, aftermarket services represented 18 percent of Bombardier’s total revenues. On March 4, 2021, the company announced that it looked for this segment to contribute 27 percent of its total sales by 2025. During Q3/22, it represented 26 percent of its revenues. Bombardier has dedicated capital to this activity and has impressive new maintenance facilities at Berlin (Schonefeld), Germany; Seletar, Singapore; London (Biggin Hill), United Kingdom; Melbourne (Essendon Fields), Australia; and Miami (Opa Locka), Florida.
Looking to the future, it is expected that the book-to-bill ratio for aircraft will moderate somewhat to the 1.0X level. The company has said that this would still enable it to achieve its goals related to both earnings growth and improved balance sheet strength.
With a record order backlog, continuing healthy demand for its products, enhanced cash flow generation, and a resilient balance sheet, Bombardier’s financial turnaround continues to be an exciting story.
Reads like a winner for these shareholder, in these stressful times.