Canadian multinational aircraft and transportation company Bombardier Inc. (BDRBF.PK) made the biggest business aircraft sale in its history, worth as much as $7.8 billion if VistaJet exercises all of its options. VistaJet, a Switzerland based provider of luxury charter flights, holds the largest wholly owned private jet fleet outside of the Americas. The purchase includes firm orders for 56 Bombardier Global jets valued at $3.1 billion and the options to acquire another 86 Global jets.
Bombardier Class B shares (TSX: BBD-B) closed up over 8% Tuesday on the TSX ending the day at $3.37. Shares had been trading near their 52 week low of $2.97 since the company announced a six month delay in the first flight of its CSeries passenger jet currently under development. The 110-seat CS100 and the 130-seat CS300 will be Bombardier's first airliners to compete directly with the smallest airliners offered by industry giants Boeing (BA) and Airbus. The delay did not come as much of a surprise to analysts and investors who remain skeptical of the company's timeline after Boeing's significantly delayed 787 Dreamliner.
Much like the Dreamliner, the CSeries jets use advanced materials and a newly designed engine, a Pratt & Whitney (UTX) geared turbofan. Bombardier expects to be able to achieve a 20% fuel burn advantage and a 15% cash savings on operating costs versus any production aircraft in its class at a lower up front cost. Bombardier currently has a modest 138 firm orders for its CSeries jets as customers remain hesitant to purchase the unproven aircraft.
At its closing price of $3.37 the stock trades at a P/E of 7.75 and has a dividend yield of 3%. Bombardier's performance in 2013 will continue to be weighed down by high program costs as the company continues to advance several programs towards production, the biggest being the CSeries airliners. The recent bad news and investor skepticism are already priced into the stock, although further short term weakness could see buying opportunities back near the $3.00 range. In the most recent earnings call Bombardier President & CEO Pierre Beaudoin expressed confidence that the company can meet its new targets, with the plane entering service about a year after a first flight in June 2013.
Even with the slow economic recovery the company has accumulated an order backlog over $60 billion reflecting improved orders of business and commercial aircraft and continued order intake for transportation. On a full year basis cash flow from aerospace operations will not be enough to fund program investment, however, the company has a more than sufficient $3.5 billion in short-term capital resources. If Bombardier can meet its first flight target with the CSeries program the stock should see a significant move upward. Downside risk should be relatively limited as shares already trade at a discount. Established orders, consistent revenues, and a decent dividend should keep the shares from falling much further barring more significant delays. Bombardier should also benefit as the economic recovery accelerates as its core businesses are highly dependent on the economic climate. Look for a low entry point in the short term as program advancement should act as a catalyst in 2013.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.