Bombardier raises cash flow targets, minimizes cancellations in case of recession

tomtidgewellAugust 4, 2022

“If there is a downturn in the economy, we are in a great position to absorb a lot of volatility.”

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August 4, 2022 • 46 minutes ago • Read in 3 minutes • join the conversation

Eric Martell, CEO of private jet maker Bombardier, attends the launch of the Global 8000 aircraft at the European Business Aviation Convention & Conference. Exhibition (EBACE) on May 23, 2022 in Geneva, Switzerland. Photo credit: Denise Balibouz /Reuters

Bombardier Inc. raised its annual cash flow target and increased its backlog to show confidence in its ability to weather a potential recession.

Bombardier said in its second-quarter financial report on Thursday that free cash flow for the full year 2022 will exceed $515 million, surpassing its previous target of $50 million. According to Bombardier, he had a net loss of $129 million ($1.22 per share) for the period ended June 30, with earnings of $1.6 billion. Future order backlog increased 37% year-on-year to reach a near-record US$14.7 billion.

Many analysts, including Germany-based market research firm WINGX, say record demand for luxury jets has peaked, but demand for private jets remains strong around the world. Last month was the busiest July on record for globally operated business aircraft flights, and the sixth busiest month overall, according to WINGX data.

Bombardier’s order volume “provides strong visibility into earnings over several years,” chief executive Éric Martel said on a conference call with financial analysts. “If there is a downturn in the economy, we are in a great position to absorb a lot of volatility.

Sales of large-cabin long-range business jets, such as those manufactured by Bombardier, have traditionally held up better than smaller models during previous recessions.

Orders from April 1 to June 30 exceeded 1.8 times the number of deliveries, a rate Martell acknowledged is unsustainable. His normal ratio of orders to deliveries is 1x to 1.1x, he said at another press conference.

After delivering 49 planes by June 30, Bombardier reaffirmed its full-year target and said it plans to ship at least 120 planes in 2022. Martell says production will increase by 15-20% next year.

At current aircraft delivery rates, Bombardier’s backlog is about 2.5 years’ worth of production, Kam Douksen, an analyst at the National Bank of Montreal, wrote in a note to clients. “We believe concerns about the potential impact of the recession on Bombardier are exaggerated,” he said, as orders are subject to “meaningful” cancellation penalties.

Today’s demand for new business jets is driven by fleet operators that allow customers to charter aircraft or purchase guaranteed access through fractional ownership plans.

“A lot of people who used to fly first class on airlines have moved into our industry and are flying private jets,” Martel said. “They aren’t all buying their own jets, but a lot of them go to fleet operators. We have grown significantly and demand remains very strong.”

Bombardier’s Class B shares surged 4.8% to $24.56 in intraday trading on the Toronto Stock Exchange. That has capped the stock’s decline this year at about 44%.

Bombardier generated free cash flow of US$341 million in the second quarter due to lower interest payments. That’s more than triple his US$91 million reported a year ago. Bombardier has reduced its debt by $773 million since the beginning of the year, which will reduce cash interest by about $60 million annually, Chief Financial Officer Bart Demosky said.

“Debt reduction remains a top priority,” said the CFO.

Still, Martell said Bombardier would consider an acquisition to protect its ability to assemble aircraft. Supply Faced with “strain” in his chain, the company is in the process of acquiring a “small supplier” in California, the CEO said without naming a target.

“If other opportunities arise and it makes sense for us – we’re not talking about the big stuff here – if it makes sense, we would definitely consider it. he said.

When supply chain disruptions were first reported at the start of the pandemic, Bombardier repatriated some of the work its suppliers had done elsewhere in order to have enough parts to assemble the aircraft. started. As a result, employment at the company’s Saint Laurent plant has increased from 900 before the pandemic to about 1,400, Martel said.

“Some of these facilities housed up to 3,000 to 4,000 people,” he said. Based on current staffing levels, “there is still considerable room to grow.”

For Bombardier, bringing work back in-house “is about protecting the supply chain,” Martel added. “But we always have to make sure we can do it at a competitive cost.”