The Montreal-based business aircraft manufacturer Bombardier (TSX: BBD.B) is a company many investors have believed to be on the verge of bankruptcy. The executives of the company believes that there is still a possibility of a turnaround. However, investors appear to be less optimistic about the company’s valuation today. Here’s my take on the company.
1,600 jobs slashed; Learjet production to stop
In February of this year, Bombardier announced 1,600 job cuts. This move was an attempt to strengthen its bottom line and ensure stability. I believe that such reports have now become a familiar pattern for investors who have been tracking the performance of this company for quite some time. Out of the aggregate job losses, 700 are set to take place in Quebec. The rest will be spread across Canada and the U.S.
This strategic retrenchment is expected to generate approximately $400 million in cost savings by the end of 2023. Additionally, the company revealed that it is putting an end to Learjet production in Q4, 2021. This move is designed to narrow the company’s focus on the manufacturing of its two principal business jets: Challenger and Global.
Management projects top-line growth: What about the market?
In 2020, Bombardier lost $568 million. However, following these cost cuts and a corporate restructuring plan, they now expect to turn free cash flow positive. According to the management’s projections, Bombardier expects to generate annual revenue of more than $500 million and achieve an EBITDA margin of 20% by the end of 2025.
Moreover, the company believes that its Global 7500 jet, which has a suggested retail price of $75 million, will significantly improve its bottom line over the next five years. As per the information disclosed by Bombardier’s president and CEO Éric Martel, this newly manufactured product has powered through its initial unprofitable phase.
Investors are familiar with these optimistic forecasts from Bombardier’s management only to see them falter time and again. Hence, most investors are steering clear of this stock. Although, this time, these projections do appear to be achievable, I’m still not convinced due to the repeated failures of the company’s management team.
Speculators in Bombardier suggest that it would be convenient for the company to go private rather than continuing as a listed company. However, the management team has said they wouldn’t be taking such proposals into consideration.
Bottom line
Bombardier has been a train wreck. Many investors have avoided this stock following its failed CSeries program. Today, it’s just a shadow of the company Alain M. Bellemare envisioned in 2015. Although the job cuts, improvement in productivity, and increased sales sound great, there is hardly any scope for long-term growth, in my opinion.
