Predictably the news media focused on the layoffs. There is no better selling news than bad news. Besides, Bombardier has been a source of bad news for a long time. So focusing on this part of the news just fits the trend.
But we suggest focusing on the order more than the layoffs.
First the order demonstrates important information.
- The new management is trying to get their turnaround moved. Nothing better demonstrates this than an order.
- The management needed an order, ideally from a marquee brand and the order needs to be sizable. They got that here.
- Air Canada is part of the Star Alliance. This is a second order from a key Alliance member - the other is Lufthansa (OTCQX:DLAKY). Note that United , another Alliance member, is looking hard at the CSeries. This selection is a significant program support.
- Other airlines, like jetBlue (NASDAQ:JBLU), are lurking to see where the CSeries program goes. The Air Canada order helps, and if United also selects it, we expect jetBlue to follow. Even British Airways CEO made positive comments recently. Program confidence is crucial to support momentum.
Regarding the layoffs - note that 29% (2,000) of these are contractors. Note also that there are no layoffs at Commercial Aircraft Division. Indeed, more employees are needed to speed up production. The layoffs will take two years, and in that time a number of these people might end up moving back to the company as it requires skills to ensure product deliveries.
The stock market should like the layoffs and the order. Bombardier's stock tanked below C$1. It may have hit bottom. The company's current commercial aviation management team is the strongest the firm has ever had.
The news may be mixed, but we think the net is positive. And long awaited.
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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