Bombardier To Boost Aftermarket Sales, Global 7500 Profit
Bombardier plans to improve the profitability of its flagship Global 7500, boost aftermarket sales and increase annual revenue by $2 billion in five years as it shifts to a pure-play business jet company following the sale of its rail business in January, the company said during a Virtual Investor Day.
In its five-year plan released March 4, Bombardier has set a revenue target of $7.5 billion for 2025, up from $5.6 billion in 2020, earnings (EBITDA) of $1.5 billion, up 20%, and free cash flow of $500 million. It plans to turn cash flow positive in 2022 as it cuts debt.
Bombardier projects a gradual upturn in business jet deliveries in 2021, but expects it to take several years for 2019 levels to return.
The company reduced production rates during the COVID-19 pandemic to reflect changed market conditions, with plans to retain the rate in 2021, said Eric Martel, Bombardier president and CEO.
In 2020, Bombardier delivered 114 business jets, down 20% from 2019.
Martel said he is encouraged by positive signs in the market, which include the health of the pre-owned market and an increase in new customers buying jet cards or private flight programs from fleet operators.
In the fourth quarter of 2020, Bombardier took gross orders for 43 aircraft in momentum that has continued during the first quarter, he said.
If there is a silver lining in the industry during the pandemic, it is the attention brought to the safety afforded by private air travel, which has caused a wave of new customers, Martel said. On an order basis, first-time buyers at Bombardier have increased from 16% of total jet orders in 2019 to 24% today.
The largest “watch trend” in the next 12-18 months will be the percentage of new customers who continue to fly privately after the pandemic, he said.
Going forward, Bombardier is well positioned in the medium and large business jet segments, where the industry derives 90% of its revenue, officials noted. The jets are well suited for use as special mission aircraft , an area of greater focus. In February, Bombardier announced that the company will end Learjet light jet production by the end of 2021.
But near-term recovery is dependent upon the rate of vaccinations and the lifting of border restrictions.
The company’s Global 7500 will help in its plan to increase revenue and profit, Martel said. The program will hit a significant milestone in 2021 as it moves from a drag on earnings to a positive contribution. With the upcoming delivery of its 50th unit, the typical early growing pains and ramp-up risk are now behind it. In addition, launch pricing of the jet, with a retail price of $75 million, will also increase over time.
The company expects to achieve an additional 20% reduction in unit costs between the 50th and 100th delivery, and by 2025 the Global 7500 is projected to be Bombardier’s largest contributor to earnings. The company expects to deliver 35 to 40 Global 7500s per year going forward.
The Global 7500 is sold out through 2023, the year it will reach its full-run rate. Bombardier is currently building its 89th Global 7500 at its Toronto facility and its 100th aft fuselage at its site in Mexico, Martel said.
“So, we have a clear vision to our actual cost on these later deliveries,” he said. “And they are coming in on plan.”
Bombardier plans to make smaller, incremental improvements of its product line in the short term to keep down research and development costs. In the past five years, the company refreshed its product line. Any new aircraft investment will take place in the second half of the decade, he said.
“We don’t feel any pressure in the short term,” Martel said. “We’ll be ready when it’s time.”
Bombardier also plans to increase revenue by expanding its worldwide service networks and growing its aftermarket business. Its in-service fleet totals 5,000 aircraft.
The company plans to increase aftermarket services from 18% of total revenue in 2020 to 27% by 2025. It plans to capture $2 billion in the business aviation services market in 2025, up from $1.2 billion in 2019.
In the next two years, Bombardier will grow its services footprint by 50% as it completes a series of expansion plans. The company is in the midst of a large expansion of its Berlin facility and has undertaken expansion projects at service centers in Singapore, London, Melbourne, Australia; and Miami. It noted that the investment is largely behind it.
Bombardier’s overall path to profitability is depending on internal actions to improve its cost structure in the future, it said.
Overall, Bombardier plans to reduce costs by $400 million by 2025, Jefferies analysts said in a note to investors.
“The path is not dependent on outsized volume growth in the recovery,” Jefferies said. “(Bombardier) is putting the right infrastructure in place to scale up on a lower cost base as the market recovers.”