Business World

Sunday 17 December 2017

John Lynch: Bombardier is still turning base metal into gold

Learjet 45
Learjet 45

IN management of bygone days, one of the great compliments that could be paid to an executive was that he or she was a 'turnaround specialist'. They were the like the alchemists of old who could turn base metals into gold.

Some companies were especially adept at taking firms that were hitherto considered hopeless cases and turning them into gold.

One that can surely lay claim to this reputation is the Canadian-listed company Bombardier. For more than a quarter of a century, it has been taking in troubled aircraft outfits and making them healthy again.

In 1986, Bombardier acquired Canadair, a troubled Canadian government aircraft company. Three years later, it acquired the struggling Short Brothers of Belfast. A year later it took over the bankrupt Learjet and this was followed by its acquisition of the Canadian division of De Havilland Aircraft. These companies have been welded into a competitive aircraft division that for the last four consecutive years has made Bombardier the market leader in its field.

The group, which has its headquarters in Quebec, was founded by Joseph Bombardier, a mechanic who dreamt of snowmobiles. The first one was rolled out in 1937, but World War II stalled his ambitions. After the war, he expanded the product range and by 1969 Bombardier was floated on the Toronto Stock Exchange.

It then began making trains and airplanes, dumping its recreation division (including the beloved snowmobile), which was sold to the heirs of Joseph Bombardier in 2003 for $875m (€620m).

Bombardier Rail is now a major global company. It supplies trains worldwide.

There is a lot of heavyweight competition in this business and there is an emerging rivalry from China. But Bombardier has an impressive portfolio of products, with its very high-speed (380kmh), regional, commuter, metro and light-rail trains plus automatic people movers, which ferry people between airport terminals.

It has also gone some way to deal with potential Chinese rivals by signing a joint venture with a Chinese company Sifang, to provide high-speed trains.

Bombardier aircraft division is now the third-biggest aircraft manufacturer in the world after Boeing and Airbus. It operates in both the business and commercial (passenger) ends of the industry. Learjet is probably its most famous name at the 'light' end.

Bombardier commercial aircraft include a highly successful short-haul turboprop plane, (used by 40 airlines), a medium-haul jet and its new jet, which competes directly with the Boeing 737 and Airbus A320.

Of course, a business like this is not immune to the pressures exerted by the world economic crisis. Demand for Bombardier commercial aircraft has declined by over 50pc; although surprisingly, business (private) aircraft declined only by 25pc.

AIRCRAFT

The outlook for business jets is mixed and the demand for the commercial aircraft market has not recovered yet, but the company believes that there is pent-up demand and is looking to the Asian, African and Middle Eastern markets.

Bombardier revenue last year was $17bn (€12.4bn), down 10pc from the previous year, a decline due to the lack of demand for railways.

Revenues in 2012, for both aircraft and rail, were the same at $8.5bn and headcount for both was 36,000 employees. However, earnings before interest and tax for the aircraft division was $400m, some $110m more than the company's railway division earned.

Its share price is Can$4.69 (€3.21), up from a yearly low of Can$3.23 but below its record high of Can$9.50 in mid-2008. Both divisions have an order backlog totalling $67bn, which should reassure shareholders.

Of concern is the reduction in the aero and transport margins and lower sales this year. But sales and margins are expected to improve over the coming years. So an investment in Bombardier can wait for another day.

Nothing in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned.

Irish Independent

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