I’ve finally come around to realize that Bombardier, Inc. (TSX: BBD.B) could very well be a good investment option.
Over the past few years, Bombardier was viewed as an “almost good” investment, assuming the company could address that one pressing the issue of the moment — whether it was the delay with getting the CSeries certified, a lack of orders for the revolutionary new jet, uncertainty over being able to meet contractual obligations, ongoing production delays, or the dispute with Boeing Co. (NYSE: BA).
Fortunately, those issues have subsided, leaving us with a growing list of reasons that Bombardier may, in fact, finally be a solid investment.
Here’s a look at some of those factors.
The trade disagreement with Boeing is over
The most recent worry for potential investors was the trade dispute with Boeing. The U.S. Department of Commerce had initially slapped tariffs of 300% on Bombardier’s CSeries jet before the U.S. Trade Commission eventually overturned that decision, noting that there was no harm caused to Boeing by the entry of the CSeries to the U.S. market.
Boeing has since said that it has no intent to file an appeal on the matter, effectively removing that last major obstacle hanging over Bombardier.
New business is coming in
Both the rail and aerospace segments of Bombardier are awash in orders — a clear sign of changing sentiments over the company.
The dispute with Boeing resulted in Bombardier seeking out European behemoth Airbus to become a controlling partner in the CSeries program and allowing the use of its U.S.-based manufacturing centre for CSeries aircraft slated for the U.S. market.
Airbus has also thrown its weight behind the CSeries, making a point of the considerable potential the jet has in an otherwise underserved segment of the market. Airbus’s entry into the CSeries project may finally be the deciding factor for airlines that were cautiously taking a wait-and-see attitude towards the CSeries.
Earlier this month, Bombardier announced several new promising contracts, including an $850 million contract to provide 40 high-speed regional trains to Sweden, and a $54 million contract with VIA here in Canada.
There’s also the over $1 billion in contracts that Bombardier has with both the City of Toronto and Metrolinx to help upgrade the transit infrastructure around the GTA. While those contracts are running behind their original schedules, Bombardier is still confident of meeting revised deadlines.
The growing trade rift between China and the U.S. could help Bombardier
Over the past few weeks, one of the most talked about and potentially impactful issues is the growing rift between China and the U.S. over trade deficits. Both nations are firing tariffs and counter fees at each other, which could lead to a much larger trade war.
Among the counter tariffs that China’s Ministry of Commerce announced plans to enforce last week was a 25% tariff on U.S. aircraft that have an unladen weight between 15,000 kg and 45,000 kg.
That weight directly targets larger Boeing aircraft as well as Gulfstream jets built by General Dynamics Corporation.
While the U.S. is currently the largest market for business jets, the Chinese market is growing at a rapid pace that will see the market size doubling over the next 20 years.
A 25% tariff on any U.S.-based company entering the market puts Bombardier’s CSeries as well as the Global series of jets in an advantageous position. Bombardier’s Global 7000 series has been heavily marketed in China, owing to its favourable sticker price and impressive range that could link Beijing and New York.
Should you invest in Bombardier?
Bombardier has always had an impressive product portfolio but has fallen short on execution and delivery of those products. The agreement with Airbus has put to rest many of those fears, as has Bombardier’s improved stance on marketing and sales to growth markets such as China.
Bombardier is, in my opinion, an intriguing investment that may be worth including in long-term portfolios.
