AMR Does Little to Change Bombardier's Troubles

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 |  Includes: AAL, BDRAF
by: FP Trading Desk

AMR Corp.’s (AMR) plans to order 22 regional jets from Bombardier Inc. (OTCQX:BDRAF) announced Thursday does little to change the current challenges the manufacturer faces in the aerospace market, according to Cameron Doerksen, Versant Partners analyst.

He said in a note to clients:

This is clearly positive news for Bombardier, but does not change our view that given the still challenging outlook for the business jet market we do not believe that the current share price strength is sustainable.

Since the start of September, Bombardier’s shares have shot up by roughly 25% as early signs that the business jet market had bottomed and the manufacturer broke ground on its new CSeries plant.

Mr. Doerksen encouraged investors to take a profit at current levels.

“We still believe that lower deliveries (and margins) of business jets will be the primary driver of profitability in the Aerospace division through [next fiscal year]," he said, maintaining his $4.25 a share price target.

But Chris Murray, CIBC World Markets analyst, said the AMR order, and early signs of recovery in commercial orders, will be greeted positively, “particularly for CRJ aircraft where some concern about the depth of the backlog does exist.”

He said in a note to clients:

The 22 aircraft expected significantly reduces the risk the company faces into 2010 with RJ production. The emergence of additional aerospace orders, which should include additional CSeries orders by the end of the year, should provide additional comfort to investors about expectations for earnings and margins in the aerospace segment moving forward, which to date has been a drag on share prices.