Long-Term Investors: Bombardier, Inc. Will Never Take Off

Long-term investors consider Bombardier, Inc. (TSX:BBD.B) one of the riskiest long-term aerospace plays. Here’s why.

| More on:
The Motley Fool

Bombardier, Inc. (TSX:BBD.B) is one of the few Canadian aerospace publicly traded companies–one that has seen its stock plummet over the years by over 90% from its peak and over 50% during the past five years. The company has been nothing but a headache for long-term investors, and this trend is likely to continue for the following reasons.

Continued problems meeting delivery schedules

A company’s ability to deliver products to its customers is of paramount importance–even more so in industries such as aerospace. Bombardier’s CSeries jet, now touted as a potential success, has been delayed by over two-and-a-half years, resulting in a budget overrun of over $2 billion and over $5 billion of write-downs resulting from a soft order base and a number of cancelled orders, as companies have waited to see when the plane will be available for sale.

The company’s deadline has shifted numerous times. Its publicly announced first-flight date was set for June 2013 initially, but was moved to September 2013, and then was moved again in 2014 to the second half of 2015. The plane has only recently become available for sale, meaning the company’s plan to launch its new Global 7000 business jet in 2018 is seriously in question and remains a tremendous risk to investors.

Government money supporting the business is unsustainable

Many Canadians continue to be amazed by the continued federal and provincial support for Bombardier, considering that many of the previous write-downs on the CSeries jet were actually funded by taxpayer money. In fact, the $1.3 billion investment made by the Quebec government in the CSeries–which has been lost due to the massive write-downs–has led to a realized loss of $160 for every man, woman, and child in Quebec.

Many analysts believe that Bombardier is privately considered to be “too big to fail” by the Canadian government and note that this may be one reason why the company might be able to operate in large deficit situations, mitigating risk. I argue that this outlook is unsustainable and is, in fact, a large risk for both Bombardier and the Canadian taxpayer; any shift in public sentiment against government bailouts could feasibly result in the company’s demise.

Management shake-up an impossibility

One of the biggest pet peeves of many institutional funds and other long-term investors is the inability to push change within the organization. The current dual-class share structure of Bombardier means that the majority of voting shares in the company are held by insiders (Clair Bombardier Beaudoin, J.R. Andre Bombardier, Janine Bombardier, and Huguette Bombardier Fontaine).

This structure has led to a stagnation of innovation and internal strife within the company–and is one of the main drivers of the stock price collapse over the years. This is unlikely to change and remains a significant long-term risk for any investor.

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 Chris MacDonald has no position in any stocks mentioned.

More on Investing

A close up image of Canadian $20 Dollar bills

3 Canadian Growth Stocks I’d Buy Under $20

These under-$20 growth stocks have the potential to deliver solid returns.

Read more »

A bull and bear face off.
Dividend Stocks

The 3 TSX Stocks to Buy Before a Long-Term Bull Market Begins to Build

The TSX may not go bullish for a while, even when the economy recovers from a recession, but investors should…

Read more »

stock market
Stocks for Beginners

A Bull Market Is Eventually Coming: 1 Stock to Buy Now and Hold Forever

Investors may be uncomfortable in market downturns, but try to stay the course and focus on the long term to…

Read more »

Woman has an idea
Tech Stocks

2 No-Brainer Stocks to Buy With $500 Right Now

Given their solid financials, healthy growth prospects, and attractive valuation, I am bullish on these two TSX stocks.

Read more »

Business success with growing, rising charts and businessman in background
Tech Stocks

A Bull Market Is Coming: 1 Growth Stock Down 33% to Buy and Hold Forever

Here's why quality growth stocks such as Aritzia are compelling long-term bets for TSX investors.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

TFSA Investors: Make $200 in Monthly Passive Income With This 1 TSX Dividend Stock

Here’s an attractive dividend stock TFSA investors can buy now to earn $200 in monthly passive income.

Read more »

You Should Know This
Bank Stocks

What the Collapse of U.S. Banks Means for Canada’s Big Six

The fear of the U.S. banking contagion spreading to Canada pulled down stocks of the Big Six banks. What should…

Read more »


Want to Retire Wealthy? 3 TSX Stocks to Add to Your Portfolio Now

Do you plan to retire rich? These three TSX stocks have potential to deliver stellar capital gains and make you…

Read more »