Bombardier, Inc. (TSX:BBD.B) is back in the news, and investors are wondering if the train and plane maker can weather the latest storm as it moves through its turnaround plan.
Let’s take a look at the current situation to see if Bombardier should be in your portfolio.
Boeing issue
Bombardier’s stock price took a big hit Sept. 27 after the U.S. Commerce Department announced a 220% import duty on the company’s planes.
The decision came after Boeing Co. filed a complaint claiming that Bombardier used government subsidies to drop its price below cost to win a major CSeries deal with Delta Air Lines in 2016.
The Delta order came on the heels of a large purchase from Air Canada a few months earlier. The two orders likely saved Bombardier from bankruptcy protection and provided a significant boost to the stock price.
Bombardier’s shares had dipped below the $1 mark, but they rebounded above $2 after the two deals were announced.
The duty decision will likely make it difficult for Bombardier to secure another CSeries order in the U.S. in the near term, and some analysts are concerned the Delta order could be at risk.
New order
Just as Bombardier was hit with the U.S. duty decision, the company received some support from an existing CSeries customer, Air Baltic.
The Riga-based airline already operates seven CSeries planes and is very happy with the performance of the new jets. The day after the duty announcement was made, Air Baltic’s CEO said his company plans to switch its entire fleet to CSeries planes.
Reports suggest the deal could be for 14 planes at a total list price of $1.25 billion.
Air Baltic did not say when it would place the order.
The news helped Bombardier’s stock recover most of the losses incurred the after the U.S. duty decision.
Rail division
Bombardier’s rail group is also facing some difficult times. The division has struggled to meet delivery targets on highly publicized contracts for street cars and light-rail vehicles in Toronto.
In addition, the company faces rising global competition from a Chinese state-owned company and appears to be left alone after the recently announced plan to merge the rail divisions of Alstom and Siemens.
Bombardier had been in talks with Siemens to merge the rail businesses.
Should you buy?
The Air Baltic announcement gives the CSeries more credibility and should help Bombardier’s efforts to sell more of the planes to global airlines.
At this point, however, the issues with the United States coupled with the struggles of the train unit are likely to keep a lid on the stock’s upside potential.
Contrarian investors might want to add a small position on any dips, but I would look for other opportunities today.
