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For more than two years now, Bombardier has been reporting financial results that reflect its efforts to enhance its product line, expand its service offerings, increase its operating efficiencies and reduce its financial leverage.
Bombardier’s reported figures from the third quarter of 2023 indicate the company is making continued progress on all these fronts.
During the seasonally-weak third quarter, Bombardier saw its total revenues increase by 28 per cent to US$1.856 billion from the US$1.455 billion realized in the third quarter of 2022. That strong performance was the result of a slightly different mix of aircraft deliveries, as well as a strong contribution from the after-market business.
Revenues related to the sale of aircraft during Q3/23 were up 33 per cent to US$1.442 billion from the US$1.083 achieved in the year-earlier quarter. During the most recent quarter, Bombardier delivered 16 Challenger and 15 Global aircraft. The year-earlier quarter saw 12 Challengers and 13 Global aircraft delivered.
Revenues associated with after-market services, such as aircraft maintenance and modification work, grew by 11 per cent year-over-year from US$372 million to US$414 million. This is noteworthy, as the maintenance market is expected to provide a larger contribution to the company’s top line over the coming decade.
The mix of aircraft sold and the increased after-market activity contributed to the company’s improved profitability during the most recent quarter. The operating income (earnings before interest and taxes, or EBIT) increased by 36 per cent from US$145 million in Q3/22 to US$197 in Q3/23.
The improved EBIT margin (10.6 per cent vs 10 per cent) was enabled by both targeted production cost reductions and the maturing flagship Global 7500 program. The margins on the Global 7500 are expected to reach their best sustainable level during 2024.
Bombardier’s improved earnings performance resulted in free cash flow generation of US$80 million during Q3/23, compared to US$52 million in Q3/22. This has allowed a further improvement in the health of the company’s balance sheet.
At the end of Q3/23, it had available liquidity of US$1.25 billion. The company’s debt reduction program remains ahead of schedule and it does not have any significant debt maturing until March 2025.
It is also important to note that new order deposits and customer progress payments are largely funding the working capital needs related to aircraft production. This further reduces stress on the balance sheet.
Despite the conflicts in Eastern Europe and the Middle East, the outlook for business aviation remains positive. Business jet utilization across North America and Europe has cooled from the high levels witnessed during the pandemic.
As well, the number of pre-owned aircraft available for sale (as a percentage of the active fleet) has increased to six per cent from four per cent a year ago. The typical availability ratio is approximately 10 per cent.
Nonetheless, the demand for new aircraft remains strong. Thanks to an impressive Q3/23 book-to-bill ratio of 1.1X, Bombardier’s order backlog stood at US$14.7 billion at Sept. 30, 2023. This is below the US$14.9 billion level three months earlier, but is exactly where it stood on June 30, 2022.
The current backlog represents between 18 and 24 months of production, depending on the aircraft model. Importantly, it represents 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 per cent of the current backlog. Bombardier’s management has said that its negotiations related to new orders should allow its order backlog to remain strong going forward.
A sizeable backlog enables confidence in its production scheduling. Management monitors the time required to deliver an aircraft from the time when it is ordered.
The management of the supply chain is therefore extremely important, and Bombardier has invested in personnel to manage that critical aspect of production. It currently does not anticipate any production delays as a result of any component/systems shortages from its many suppliers.
A major project for the company continues to be the movement of its Global production from Downsview Airport in Toronto to Toronto Pearson International Airport in Mississauga. The massive new facility, located in the northwest corner of Canada’s largest airport, is nearing completion and production tooling and inventories are already being installed there.
It is expected the new facility will be fully operational in the first quarter of 2024.