Bombardier: Stock of the Week

Canada’s about to have the fastest and furthest-flying private jet – should you invest in it?

Andrew Willis 8 January, 2024 | 4:50AM
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Key Takeaways for Bombardier Stock:

  • Bombardier stock is now a pure-play business jet maker, with an eye on profitability and a new product that aims to take market share.
  • Gulfstream still controls 48% of the market, compared to 35% for Bombardier, and Gulfstream is much more profitable at the moment.
  • Gulfstream, Bombardier’s closest competitor, is set to introduce a model with a similar range in 2024. Meanwhile, in testing, Bombardier’s Global 8000 became the first business jet to break the sound barrier - and did so using relatively sustainable jet fuel (SAF).

 

Andrew Willis: Forget Gulfstream, when I fly in my private jet I want to have the fastest one with the best range – and don’t forget seating for 19…

…Is what I’d say if I had an extra 80 million lying around. In the meantime, most of us will have to settle with Bombardier stock BBD. That said, it’s probably a better use of the money. This Canadian industrial conglomerate has emerged as a pure-play business jet manufacturer, with unique potential in products about to take off.

The Global 8000, which I referred to at the beginning of this video, is set to be the company’s new flagship jet– easily flying you and a few of your friends to the other side of the planet around the speed of sound. The new model will take the cake from close competitor, Gulfstream, according to equity analyst Nicolas Owens, who notes that while the companies both control a majority of the business jet market, they differ at an existential level. Bombardier accounts for 35%, and Gulfstream 48% of the market, while the latter makes 33% more annual revenue at nearly twice the margin.

Bombardier’s Not as Profitable Now But at a Bigger Discount

We do have to cut Bombardier some slack, however, as the company only closed the sale of its transportation business in 2021, and the company’s now on a quest for increased profitability. Work on the margins is important in the private jet space, where we may only see growth around 1% and inflation-like increases in pricing.

As a private jet investor, you might not get massive growth and dividends, but you’ll be in an elite market with major barriers to entry, and if you time it right, a discount ticket to margins that may just take off.

For Morningstar, I’m Andrew Willis.

 

bulls Bombardier Bulls Say

  • Bombardier accounts for one third of all deliveries of long-range business jets, which makes it one of the biggest names in private aviation.
  • Fractional jet operators, such as Bombardier’s biggest customer NetJets, saw a 51% increase in flight hours on Bombardier planes between June 2019 and June 2023.
  • Bombardier’s margins can expand significantly as it captures market share for high-margin aftermarket services on its fleet and increases the segment’s proportion of consolidated revenue.

bears Bombardier Bears Say

  • Bombardier increased its leverage before the pandemic and faces financial risk in the event of another shock to travel demand or the supply chain.
  • There is potential for disruption in long range business jets if the manufacturers of medium business jets, such as Textron and Embraer, design larger models that effectively serve the same market.
  • Bombardier has minimal exposure to the military end market when compared with its closest peers, so it does not enjoy the stability of this more mature market.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bombardier Inc Registered Shs -A- Multiple Vtg Conv87.00 CAD-0.88

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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