Bombardier Inc. (TSX: BBD.B) has been one of the most frustrating investments of the past few years. Despite the fact that it has a couple of really solid divisions—railroad, for example—its aerospace division has overpromised and underdelivered with regard to the CSeries line of planes.
While the company is doing the best that it can, there are a lot of bears who see blood in the water. The bulls are arguing that Bombardier is currently at its bottom and should start to turn around if its CSeries is released.
Should you invest in the company in 2015. My answer comes down to one question: Can the CSeries be delivered before the company’s debts catch up to it?
Obviously the biggest reason to invest or not is because of this airplane. There are 17 different airlines that have agreed to purchase 243 CSeries planes when they are released. That alone is at least $15 billion in revenue. Then there are the options for another 162. That means that the companies are not required to buy the planes, but could. Even if only half are bought, the company is still looking at another $5 billion.
But the question is whether or not the company can deliver on its promise. First there were delays in delivery. Then there was engine failure, which resulted in four missed months of tests. There are strict requirements put on manufacturers to ensure the planes are in good condition. That means thousands of hours of testing.
If all goes according to plan, the CSeries should be released by the end of 2015, which will be a sudden windfall for the company and for investors alike.
Balance sheet is weak
The unfortunate reality for Bombardier is that its balance sheet is in bad shape. On the one hand, it does have $2.5 billion in cash that it can use. However, on the other hand, it has $8 billion in long-term debt and preferred shares. Of that, $750 million comes due in 2015.
Now, it is important to understand that the company does have a really strong railroad division and an aerospace division that does generate revenue. Each year, it generates about $20 billion in revenue, and has more than double that sitting in backlog orders.
And the company is making moves to streamline the business. It recently let go of over 4,000 people, which should help the company save close to $270 million a year.
Should you invest?
While I do think Bombardier is going to deliver this year, I think you might want to wait to start a position in the company. Trying to pick a bottom has lost a lot of money for investors and I would rather see you make less profit than lose more money.
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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 Jacob Donnelly has no position in any stocks mentioned.