RIO DE JANEIRO, BRAZIL – After abandoning commercial aircraft and propeller operations and agreeing to sell the passenger train equipment division to Alstom, the Canadian company‘s only remaining activity will be the manufacturing and maintenance of executive jets. This is a risk that no competitor has faced.
Executive jet manufacturers of the Gulfstream, Falcon, Cessna, and Legacy brands have defense industry or other deals that help offset the bad periods that affect this market from time to time. During the last recession, the number of private jet deliveries dropped from over 1,100 in 2008 to 846 in 2009. In 2018, there were 614 deliveries, according to JPMorgan Chase, amid concerns over the trade war and low commodity prices.
Defense operations allow private jet manufacturers to withstand periods of poor demand and to maintain investments in new aircraft models, which helps boost sales, said Roland Vincent, an aviation consultant with Plano, Texas. Giving up that counterbalance places Bombardier in a more vulnerable position than its competitors, he said.
While the rivals have their defense business, “Bombardier has nothing,” Vincent said. “This exposes the company to greater cyclicality. “
Best option
Bombardier had little choice but to sell divisions to pay off debts, according to its CEO, Alain Bellemare. The commercial aviation unit accumulated US$400 million (R$1.6 billion) in losses in 2016 and was burning US$1 billion of its cash, Bellemare explained last week. The train unit was facing “challenging projects” this year that would likely affect profit margins.
On the other hand, the jet segment is expected to perform well this year. Bombardier will expedite deliveries of the Global 7500, the largest size, longest range corporate aircraft available on the market, the CEO said. The aircraft, which is priced at US$73 million, went into operation in late 2018 after a two-year delay and all units to be manufactured are sold up to 2022. After having delivered 142 executive jets in 2019, Bombardier expects to deliver 160 this year, 35 to 40 of the Global 7500 model.
“We are extremely well positioned,” Bellemare said in an interview with BNN Bloomberg television in Canada. “We have a world-class franchise, incredible products, and excellent features.”
The company’s shares have accumulated a 23 percent drop this year. Bombardier boasts one of the largest lines of executive jets, ranging from the popular Challenger 350, with ten seats and travel range between the two US coasts, to the Global 7500, which can fly from New York to Hong Kong and features a shower and bedroom. The aircraft manufacturer has also upgraded the Global series with new turbines and greater range for the 5500 and 6500 models.
Last year, executive jets accounted for US$5.4 billion of Bombardier’s turnover and the outstanding order backlog was valued at US$14.4 billion. In 2018, the global business aircraft market generated approximately US$20 billion, according to the General Aviation Manufacturers Association.