Pressure is starting to mount on Bombardier Inc. to increase development spending on the new jet as rivals continue to unveil plans for competing planes, a situation that raises questions about the Canadian company’s financial goals as it seeks investors. Fights to regain interest.
US-based Gulfstream announced last week that it would bring two new jets to market – including one, the G400, which aviation analyst Richard Aboulafia said would provide an immediate “knockout punch” against Bombardier’s Challenger 650. This follows a disclosure by France’s Dassault Aviation SA. It is planning two new large-cabin jets. According to Scotiabank equity analyst Konark Gupta, competition with new products from other manufacturers including Brazil’s Embraer SA and US giant Textron Aviation is only going to heat up over time.
Shares of Bombardier have declined in four of the past five trading sessions since Gulfstream’s announcement, down eight percent overall. They closed Friday at $2.03 on the Toronto Stock Exchange.
“we believe [Bombardier] Gulfstream is more likely to roll out new models, derivatives or refreshes for now rather than remaining silent in order to remain competitive with Dassault and potentially others,” said Mr. Gupta in a recent research note. The Montreal-based jet maker “Not investing in new products could result in the risk of losing market share and facing revenue or margin headwinds,” he said.
That means Bombardier’s plan to limit capital expenditures to around US$200 million over the next several years may not be practical, which in turn will affect its free cash flow goals, according to the analyst. The company estimates it will turn cash flow positive next year and generate more than US$500 million in free cash by 2025, a goal that hinges on limited spending.
Bombardier Chief Executive Officer Eric Martel and Chief Financial Officer Bart Demsky are spearheading a recovery for the Canadian industrial giant, which hinges on a slimmed-down business model focused entirely on private jet sales and servicing. The company has a lineup of popular aircraft, such as the all-new Global 7500, that are generating orders, but its still weak financial position means it lacks the ability to update older models or develop all-new ones. Is. Design.
“The challenge with Bombardier is that they don’t have access to capital at affordable rates,” said aerospace consultant Roland Vincent, a former Bombardier executive. “But he has a few years. I don’t think he has anything to do now.”
Bombardier spokeswoman Anna Cristofaro declined to comment when asked whether management sees the capital expenditure forecast as a hard limit or if it could be increased as needed. “We are very proud of our current aircraft offerings, and we will continue to bring new and innovative products to market,” she said via e-mail, adding that executives will be able to provide more color when the company reports third- Quarterly results at the end of this month.
Over the past three years, Montreal-based Bombardier has announced plans to refresh four different jet models. The large-cabin Global 5500 and 6500 aircraft were updated to bring them closer in quality and performance to the company’s flagship Global 7500, a scratch-designed US$75-million aircraft that entered service in late 2018. Were.
A stripped-down version of the Learjet 75 was announced in 2019, although Bombardier has since decided to cease production. Its the entire Learjet line. Last month, the company said it would bring to market an improved version of its Challenger 350 aircraft, which would be called the Challenger 3500.
Bombardier spent more than US$1 billion to develop the Global 7500, but much less on other aircraft, which are not clean-sheet designs but modified versions of existing aircraft. The company’s methods for refreshing the jet (for example, transferring its patented “Nuage” seat technology, which was first introduced on the 7500, in other globals, and in the Challenger 3500) saw it “getting meaningful upgrades”. Proven track record to build for”. At a low cost with low growth risk,” Mr Demosky told the industry. analysts last March.
Analysts say the most urgent need to replace the Bombardier jet is the Challenger 650, a popular but outdated jet with an original airframe design that did not change before Bombardier took over the Challenger program with the purchase of Canadair Ltd from the federal government. Is. in 1986. They say the need is even more clear now that Gulfstream has announced the new G400, which will hit the market in 2025.
“The G400 is a major challenge that will require them to think about raising funds to develop a new competitive aircraft”, Mr Aboulafia said in an interview. “It must be a brand new plane. You don’t refresh 40 year old models. … Unless they can do something, they will lose their market position.”
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