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Bombardier has reported strong financial results for its second quarter ended June 30, 2022. During the period, its total revenues increased two percent year-over-year to US$1.55 billion from US$1.52 billion. This was as expected and reflected a similar level of aircraft deliveries. Bombardier delivered 28 aircraft during Q2/22, compared with 29 in Q2/21. The most recent quarter’s number included 16 Globals and 12 Challengers.
Service revenues during the quarter reached US$359 million, an impressive 22 percent increase from the US$295 realized during Q2/21. They represented 23 percent of Bombardier’s total revenues during the most recent quarter, versus 19 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 25 percent to US$269 million from US$215 million and its operating income (defined as Earnings Before Interest and Taxes) increased by 180 percent to US$101 million from US$36 million.
This enhanced earnings performance enabled free cash flow of US$341 million during the quarter, a US$250 million improvement from Q2/21. As a result of this strong performance, the company has raised its 2022 full-year forecast for free cash flow from “greater than US$50 million” to “greater than US$515 million.”
The company’s balance sheet was strengthened during the quarter, as US$373 million of debt was reduced using cash on hand. Despite that, its cash and cash equivalents stood at approximately US$1.4 billion at June 30, 2022.
Bombardier’s outlook remains very encouraging. Despite the conflict in Eastern Europe and global economic concerns, business aviation trends remain positive. Business jet utilization across both North America and Europe has rebounded impressively from the levels seen two years ago and is expected to continue to increase. The high demand for bizjets is supported 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 less than four percent. The typical availability ratio is approximately 10 percent.
The strong level of demand is reflected in Bombardier’s latest backlog numbers. Thanks to its impressive Q2/22 book-to-bill ratio of 1.8X, the order backlog stood at US$14.7 billion at June 30, 2022. That was up from US$13.5 billion at March 31, 2022; US$12.2 billion at Dec. 31, 2021; US$11.2 billion at Sept. 30, 2021; and 37 percent above its US$10.7 billion level a year earlier.
This sizeable backlog represents approximately two years of production of both Global and Challenger models. Furthermore, it is comprised of a healthy mix of traditional customers that include corporations, families, fleet operators, and governments. An advantage of such a large backlog is that it gives Bombardier confidence in its production scheduling. Management is mindful of the time required to get an aircraft to its buyer from the moment that it is ordered. This influences a model’s rate of production, as well as its selling price. The company has chosen to be conservative in its production rates, but not to a point where it discourages orders due to a lack of availability. It also remains vigilant with respect to supply chain issues and currently does not anticipate any problems that would interfere with its near-term production schedule.
It is also worth noting that new order deposits and customer progress payments are largely funding the working capital requirements for aircraft production. This further reduces stress on Bombardier’s balance sheet.
While Bombardier’s Q3/22 financial performance will likely be influenced more by continued operating efficiencies than by revenue growth, the fourth quarter is expected to provide an impressive performance. With a record order backlog, robust demand for its products, enhanced cash flow generation, and the continuing strengthening of its balance sheet, Bombardier’s financial turnaround remains an exciting situation to monitor.
