Bombardier Inc. Doesn’t Want You to Know This

These three things are standing in the way of Bombardier Inc’s (TSX:BBD.B) viability.

| More on:

It has been one year since things began to fall apart over at Bombardier (TSX:BBD.B), following a series of delays with its prototype C Series aircrafts. Since then there have been thousands of layoffs, management shuffles, and a pummeling of Bombardier’s stock. In November, however, the stock managed to climb back up to $4.43 as tangible progress was made with the C Series.

All of that forward momentum then came to a sudden stop in January, and on Thursday a series of announcements were made that could either make or break the company. The burning question for investors is whether or not Bombardier can ever bring about a positive return.

Black Thursday

Bombardier’s Q4 results brought some unexpected surprises this year. First off, both CEO Pierre Beaudoin and Chairman Laurent Beaudoin announced that they would be taking a step down on the corporate ladder and would be appointing Alain Bellemare as the new CEO. This move has been made to show investors that the company is moving towards an era of change, while still maintaining the core of its current management team.

This is also to shift attention away from the now outgoing CEO’s tenure, which is marked by a 70% drop in stock price and numerous product delays which have dragged the company to the point it is today. Bombardier implemented a similar strategy to satiate investors earlier in the year when it split its aerospace division into three parts.

The next major announcement that came out was that Bombardier would be suspending its dividend in an effort to save cash. The company then followed up this unexpected revelation with a call to raise $1.5 billion in additional debt and $600 million in equity.

Death by stock price

Investors reacted swiftly to these announcements as the share price plummeted from $3.05 to $2.50. These announcements have only been the tip of the iceberg in what has been a terrible year over at Bombardier. Due to all the negative publicity, even any sort of good news gets unacknowledged. Bombardier did manage to post record revenues of $20.1 billion in 2014, up from $18.1 billion in 2013.

Death by delays

The largest millstone around the neck of Bombardier is its apparent inability to bring about new products on time and on budget. The C Series for example is $2 billion over budget and a year behind its original delivery date. Then you have Bombardier’s business aircraft division LearJet which despite finally becoming number one in terms of sales was forced to “pause” production of the Learjet 85 due to delays and lack of interest. This shutdown cost Bombardier $1.4 billion in write-downs and led to a year end net loss of $1.2 billion in 2014.

Death by debt

If we want to understand Bombardier we have to understand what its management is thinking and why it is acting the way it is. Management believes that they can succeed, but the company is quickly drowning in debt. In the year-end financials we see $7.3 billion in long term debt, $3 billion in interest payments, and $11 billion in purchase obligations. This is all above and beyond the $2.1 billion in additional debt and equity Bombardier just announced that it would be seeking. This debt may become more expensive now that Moody’s has cut its credit rating from B-a3 to B-1.

Despite all the overspending and delays, Bombardier believes that the C Series can still be a generational aircraft, and has the potential to erase all the bad memories of 2014 and 2015. The problem is that the C Series only has managed to secure 243 firm orders, which is still short of the 300 projected by management.

Let’s be frank, Bombardier has dug itself into a deep hole and its stock price is doing a good job of reflecting that. The delays and debt have shocked investors and Bombardier is attempting to pull out all the stops to keep them on board. The reality that Bombardier doesn’t want you to realize is that it could take up to five years to dig itself out of this hole.

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 Cameron Conway has no position in any stocks mentioned.

More on Investing

Arrowings ascending on a chalkboard
Tech Stocks

Why I Think Nuvei Stock Has Market-Beating Potential

Given its growth initiatives, expanding addressable market, and attractive valuation, I believe Nuvei has the potential to outperform the broader…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Need Passive Income? Turn $5,000 Into $23.85 Every Month

If you're looking for passive income that comes in like a paycheque, this dividend stock provides that to you along…

Read more »

A worker drinks out of a mug in an office.
Metals and Mining Stocks

5 Things to Know About Nutrien Stock in December 2022

Trading at heavily depressed multiples, Nutrien stock is a great opportunity, as it delivers solid financial results and an optimistic…

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Shopify Stock Rose 15% in November: Is it a Buy Today?

Shopify (TSX:SHOP) stock rallied 15% this month but is still down 69% year to date, so should investors worry that…

Read more »

Man holding magnifying glass over a document
Investing

The 3 Most Oversold TSX Stocks to Watch Before 2023

Many oversold stocks are merely victims of market circumstances and potentially profitable bargains when they seem downtrodden.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

A TFSA Contribution Room of $88,000 and 1 Dividend Aristocrat Can Make You $172,330 Richer

A high-yield Dividend Aristocrat in the energy sector is a suitable holding for Canadians with $88,000 available contribution rooms in…

Read more »

Upwards momentum
Investing

Year-End Sales Tracker: 3 Growth Stocks Going for Value Prices

Growth stocks like Aritzia (TSX:ATZ) are on discount.

Read more »

Dollar symbol and Canadian flag on keyboard
Investing

2 Canadian Stocks I’ll Be Buying Hand Over Fist in 2023

Alimentation Couche-Tard (TSX:ATD) and another top growth stock could increase dividends in 2023.

Read more »