Bombardier sets five-year plan for rebound
Bombardier Inc. has outlined a five-year plan to boost profit and cash flow on the back of a gradual recovery in private plane sales that the company predicts will start this year.
Free cash flow will probably turn positive next year before rising to more than US$500 million in 2025, when annual revenue hits US$7.5 billion, Montreal-based Bombardier said Thursday. The company, which completed the sale of its train unit early this year, had business-jet revenue of US$5.6 billion in 2020.
Bombardier disclosed the forecasts ahead of a morning presentation to investors — its first under new chief executive Éric Martel, who took over in April.
Having exited commercial aviation and train-making as part of a turnaround plan engineered by former CEO Alain Bellemare, Bombardier is now squarely focused on large and medium-size business jets, which have traditionally been the company's most profitable sector. Many of its hopes rest on the ultra-long-range Global 7500 jet, which entered service in late 2018 and is sold out through 2023.
“We've put a lot of thinking into this plan in the last six or seven months,” Martel said on a conference call with reporters. “We know, I know, exactly where we're going ...”
Generating cash in 2022 would represent a first for Bombardier since 2018, when results were boosted by proceeds from a Us$600-million land sale. It has burned through billions of dollars of cash in recent years — repeatedly missing its own forecasts — as it incurred delays and cost overruns in the train business while investing massively in new jet programs such as the C Series jet. Airbus eventually took over the program.
“The market will have to assess whether this new Bombardier team can meet its long-term targets, versus the failure of the previous team to do so,” Citigroup analyst Stephen Trent said Thursday in a note to clients. He called the 2025 goals “somewhat ambitious.”
Investors appeared to like Thursday's moves. Class B shares of Bombardier jumped 8.3 per cent to close at 65 cents in Toronto. The stock has lost about 42 per cent of its value in the past year.
Martel acknowledged the recent skepticism, saying Bombardier's past stumbles mean the pressure is on his management team to deliver.
“We're going to work extremely hard as a team to ensure we don't disappoint this time and we meet our plan,” the CEO told reporters. “We're going to take small steps, one at a time.”
Martel unveiled plans last month to cut about 1,600 jobs — including 700 in Quebec — and end production of the Learjet private plane as part of a drive to save US$400 million annually by 2023. The savings will come from labour productivity improvements, reduced corporate costs and an optimized manufacturing footprint, Bombardier said.
Adjusted earnings before interest, taxes, depreciation and amortization will probably reach US$1.5 billion by 2025, Bombardier said. On that basis, the company earned US$200 million last year.
Although it's not yet profitable, the Global 7500 will probably become the biggest EBITDA contributor over the next five years, Bombardier said. The company is nearing its 50th Global 7500 delivery, and it expects unit costs to drop about 20 per cent by the time the 100th jet has been delivered.
After shrinking 20 per cent last year, private-plane deliveries should rise about two per cent worldwide in 2021, according to a presentation posted on the Bombardier website.
COVID -19 has pushed a growing number of customers to fly by business jet for the first time, due to increased safety and security concerns, executives said. The number of billionaires globally is growing by 10 per cent a year, which should support demand, Martel said.