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Bombardier has reported strong financial results for its second quarter ended June 30, 2023. During the period, its total revenues increased eight percent year-over-year to US$1.68 billion from US$1.56 billion. Bombardier delivered 29 aircraft during Q2/23, compared with 28 in Q2/22. The most recent quarter’s number included 14 Globals and 15 Challengers.
Service revenues during the quarter reached US$428 million, a 19 percent increase from the US$359 million realized during Q2/22. This represented 26 percent of Bombardier’s total revenues during the most recent quarter, versus 23 percent the year before. This is important, as the service business is a key part of the company’s growth strategy.
Year-over-year, the company’s gross profit during the quarter increased by 38 percent to US$371 million from US$269 million and its operating income (defined as Earnings Before Interest and Taxes) increased by 140 percent to US$245 million from US$101 million. This impressive performance was the result of improving Global 7500 margins, better service margins, and enhanced overall operating efficiencies.
During Q2/23, there was net cash flow usage of $222 million. This was largely associated with the inventory build required for the planned production of aircraft during H2/23. Much of that inventory is expected to be released during H2/23 as aircraft are delivered. Cash was also used in the construction of the new Global Aircraft Manufacturing Centre in Mississauga. The move of Global production is due to be transferred from Downsview Airport in Toronto during Q3/23.
It is worth highlighting the expected distribution of aircraft deliveries during 2023. The company continues to plan on delivering at least 138 aircraft this year. Having delivered 51 in H1/23 (22 in Q1 and 29 in Q2) that leaves at least 87 to be delivered during H2. Management expects that approximately two-thirds of those (58 units) will be delivered during Q4. Those units would represent 42 percent of the full year target. Given this production schedule, the significant short-term investment in inventories is understandable.
Bombardier’s improving financial performance has been recognized by leading credit rating agencies. In April 2023, Moody’s Investors Services upgraded the company’s issuer rating from B3 to B2. In May 2023, S&P Global Ratings upgraded its rating from B- to B.
Bombardier’s outlook remains favorable. Despite the Eastern European conflict and global economic concerns, private aviation trends remain positive. Business jet utilization in both North America and Europe has returned to pre-pandemic levels and Asian activity is gradually rebounding. The demand for bizjets is supported by the fact that the number of available aircraft in the secondary market remains relatively low. As a percentage of the active fleet worldwide, the number of pre-owned aircraft for sale is estimated to be less than six percent. The typical availability is approximately 10 percent.
A steady level of demand is reflected in Bombardier’s latest backlog numbers. Thanks to its Q2/23 book-to-bill ratio of 1.1X, the order backlog stood at US$14.9 billion at June 30, 2023. That compares to US$14.8 billion at March 31, 2023; US$14.8 billion at Dec. 31, 2022; US$15.0 billion at Sept. 30, 2022; and is slightly above the US$14.7 billion level a year earlier.
This sizeable backlog represents 18 to 24 months of production, depending on the model. Further, it is comprised of a healthy mix of traditional customers that include corporations, families, fleet operators, and governments. The backlogs quoted above are net numbers, as order cancellations are often experienced during any quarter. This is true of any aircraft manufacturer, including airliner producers. Bombardier did not have one cancellation during the most recent quarter.
As noted earlier, Bombardier’s aircraft deliveries during Q3/23 are expected to be similar to those of Q2/23. The final quarter is therefore expected to be impressive in terms of revenues, earnings, and cash flow. With a healthy order backlog, robust demand for its products and the continued strengthening of its balance sheet, Bombardier continues to be an exciting company to monitor.