Bombardier is in no rush to launch a new aircraft
The company's revenue forecasts are up, said Eric Martel, President and CEO of Bombardier. (File photo)
Bombardier is in no hurry to launch a program to develop a new aircraft, says its big boss during an update of its strategic plan.
President and CEO Eric Martel says there is no rush to launch a new program by 2025. There is no pressure now from customers or competitors for a new program, Martel said at the company's Investor Day on Thursday. It gives us time to decide what the best capital allocation would be.
The business jet maker hasn't completely set aside research and development , he said at a press conference on the sidelines of the presentation: I have people working today, secretly, on potential new products and we will mature the technologies. We'll see when the timing is good.
The marketing of a new aircraft is spread over several years and must be planned for the long term. In the past two years, Bombardier has instead opted for updates to its existing programs. This approach has the merit of being faster and less capital intensive than a new program.
Mr. Martel gave the example of the 2021 update to the cabin of the Challenger 350, which bears the name Challenger 3500. We have sold a lot of them. It is an extremely popular aircraft.
Analyst Benoit Poirier, of Desjardins Capital Markets, approves the company's strategy. It is a good decision, because it requires less capital, it is more appreciated by creditors and it is less risky, he underlines in a note.
Earlier Thursday, Bombardier raised its 2025 targets as it moves forward on its strategic plan, set in 2021.
It now hopes to generate nearly US$900 million in cash flow in 2025, more than the US$500 million initially projected.
If the targets are met, this new flexibility would allow Bombardier to accelerate the repayment of its debt. The company is targeting a range between 2 and 2.5 times its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for 2025, which would be close to investment grade companies.
The company estimates that it will be able to generate revenues of more than US$9 billion in 2025 with margins before interest, taxes and depreciation of around 18%. The initial target was for revenues of US$7.5 billion and margins of around 20%.
Recall that Bombardier found itself in a difficult financial position in the late 2010s due to cost overruns on the CSeries, sold to Airbus (A220).
La pandemic will have given a boost to the business jet industry as many corporations and wealthy travelers have switched from commercial aviation to private planes.
Despite the uncertain economic horizon, Mr. Martel believes the company can improve its targets, although he acknowledges that customers seem a little hesitant. Orders are a bit lower, but we're still confident we've got as many orders as deliveries.
The leader wouldn't go into detail before the release of the first quarter results, scheduled for April 27.
Analyst Tim James of TD Securities points out that Bombardier management has a history of offering conservative forecasts. With that in mind, we are encouraged by the increased 2025 targets. This gives an idea of management's level of confidence when considering the current economic environment.
Beyond of 2025, management aims to achieve revenues of at least US$1 billion in the defense segment during the second half of the decade, i.e. between 2026 and 2030.
In recent months, Mr. Martel has repeatedly reiterated his interest in a major military contract, the replacement of Canadian Defense CP-140 Auroras. The CEO had shared his fears that Ottawa would award the contract to Boeing without a tender.
He says he has met with government officials since, and the conversations that he reassured him and led him to believe that there would be a call for tenders. We don't want favors. We want fair competition.
Bombardier's stock jumped C$4, or 6.47%, to C$65.82 on the Toronto Stock Exchange, in the early morning.