EUR 850.00 For Business Accounts Only

Morningstar | Bombardier Is Attempting to Exit Its Turnaround and Kickstart Earnings Growth and Cash Flows

Bombardier is a Canada-based industrial conglomerate with positions in aircraft manufacturing and rail transportation. It remains controlled by the Beaudoin family through a two-tier share structure. The firm operates three aerospace units--business aircraft, commercial aircraft, and aerostructures-- that account for just over 50% of revenues. In addition to its aerospace activities Bombardier is a global leader in rolling stock (trains), which represents the other half of the company's revenue base. The business jet unit manufactures Learjet, Challenger, and Global jets. The commercial aircraft unit designs, develops, and manufactures regional aircraft, including the CRJ and the C Series. The latter aircraft program has faced significant challenges requiring cash infusions from the Canadian government. Airbus recently stepped in and took a majority stake in the C Series, renaming it the A220 and promising to support the program's sales and its aftermarket services but paying nothing for it. The smaller aerostructures business, which manufactures aircraft components, is an internal supplier, generating about 75% of revenue from intracompany sales. The transportation unit is focused on light rail, metro, commuter, and regional trains and provides related railway solutions to customers. Bombardier has faced considerable financial challenges over the past few years, owing primarily to the A220 program. But the transportation unit has also faced problems on a handful of contracts, which has weighed on cashflows. Despite these headwinds, we think the management team, which was brought in a few years ago to turnaround the ailing conglomerate, is making the right moves. As part of its path toward a more resilient business model, Bombardier has shed (or is planning to shed) multiple assets, including a stake in its transportation business to CDPQ, the A220 program, prime real estate in Toronto, training activities in business jets, and the Q400 turboprop plane. Concomitantly, management is trimming its workforce, which should keep a lid on costs. As a result, Bombardier's management team is now focused on its leading business jet and transportation businesses.