Bombardier, Inc.: Is the New CSeries Order a Signal to Buy?

Bombardier, Inc. (TSX:BBD.B) just received some more good news. Is it time to to pick up the stock?

| More on:
The Motley Fool

Bombardier, Inc. (TSX:BBD.B) received some good news this week, and investors are wondering if things are finally starting to turn around for the troubled company.

CSeries orders

Bombardier’s firm orders for the CSeries are now up to 250 after Air Baltic decided to convert seven purchase options connected to its original 2012 deal. The Latvian company will be the first airline to put the new CS300 plane in service when it takes delivery later this year.

The news comes on the heels of Air Canada’s recent letter of intent to purchase 45 CSeries jets. That deal could be firmed up in the coming weeks and would push the order count to 295, just short of Bombardier’s target of 300 ahead of the first commercial flight.

Unfortunately, not all of the recent news has been good. One of Bombardier’s earliest CSeries customers, Republic Airways, filed for bankruptcy shortly after the Air Canada announcement. The 40-plane deal with Republic was already on thin ice due to changes in the company’s business model, and some analysts believe the order will now be cancelled.

The CSeries program has been plagued by cost overruns and lengthy delays. Delivery of the first jet is more than two years behind schedule, and the program is at least $2 billion over budget.

Bombardier has also struggled to find buyers in the wake of the plunge in oil prices. The CSeries is marketed on its fuel efficiency and the drop in fuel costs has removed much of the appeal. As a result, airlines are turning to older, less expensive models instead of opting for the new CSeries jets.

Cash issues

Bombardier is sitting on mountain of debt and continues to burn through cash as it prepares to deliver its first new jets in the coming months. The CSeries program isn’t expected to turn a profit until at least 2020, so the cash flow challenges could be around for a while.

The company had to turn to Quebec and the province’s pension fund for money late last year and is currently waiting to see if the federal government will also pitch in to help.

Quebec gave Bombardier US$1 billion for a 49.5% stake in the CSeries program, and the pension fund contributed US$1.5 billion for a 30% position in Bombardier Transport, the company’s rail division.

Train troubles

While the plane division gets most of the attention, Bombardier’s train group is also under fire.

The business has struggled to meet delivery commitments on a streetcar order for Toronto and received a beating in the media over a botched train-signalling contract in the United Kingdom.

Those issues seem minor when compared to two recent contract losses in the United States. Boston and Chicago have chosen the subsidiaries of a Chinese state-owned firm for their latest rail contracts. The wins are the first for the Chinese in the U.S., and that could be trouble for Bombardier going forward because the American market has historically been very important for the train division.

Should you buy?

The new orders for the CSeries are certainly good news, but Bombardier is still a risky bet. I would avoid the stock until a turnaround is clearly in the works.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »