Bombardier, Inc. (TSX:BBD.B) is finally getting its CSeries program off the ground, and investors want to know if this is the right moment to buy the stock.
Let’s take a closer look at Canada’s iconic plane and train maker.
CSeries developments
Last week was a rare bright spot for Bombardier and its employees.
The positive news began with an announcement that Quebec would make good on its commitment to provide Bombardier with US$1 billion in return for a 49.5% ownership stake in the CSeries program. Quebec gave Bombardier US$500 million on June 30 and will release the remaining US$500 million on September 1.
Confirmation of the investment is important because it shows potential buyers that the government is committed to the program. In fact, Quebec’s support is cited as a major reason why Bombardier managed to secure its recent mega-deal with Delta Air Lines.
A few days after the Quebec funding news, Air Canada provided investors with some anxiety relief by firming up its order for 45 CSeries jets. The Canadian carrier signed a letter of intent back in February, but negotiations with Bombardier and the government had lingered longer than expected, and Air Canada even threatened to walk away from the deal if it didn’t get its way on demands for flexibility on where it can conduct its maintenance work.
With the Air Canada issue put to bed, Bombardier’s investors can check off one more lingering item.
The final triumph of the week was Bombardier’s delivery of the first CSeries to Swiss International Air Lines. It’s a significant event for two key reasons.
First, Bombardier can now start to collect revenue on the CSeries jets. Most airlines don’t pay for planes until they are delivered, and the production delays have put serious strain on Bombardier’s balance sheet.
Second, investors are hoping more airlines will finally step up and place orders for the new jet.
Should you buy?
The recent string of good news should put a floor under the share price, but I still wouldn’t rush to buy the name.
Despite all the good news, Bombardier’s stock finished the week pretty much where it began. That was a bit of a surprise, and investors have to wonder why the share price didn’t push higher.
It’s possible the good news was already priced in and the market is now turning its focus to other concerns.
One is the road to profitability on the CSeries program. Expectations are set for positive cash flow in 2020 or 2021, but analysts are worried the company had to discount the CSeries too heavily to get the Delta deal, and that could impact negotiations on sales to new customers.
Bombardier’s train division is also working its way through some turbulence. The group recently lost two big U.S. contracts to a Chinese competitor and has struggled to meet its commitments on a large streetcar order for the city of Toronto. Now that the CSeries program is stabilized, challenges in other areas of the business could come back on the market’s radar.
