The rollercoaster ride known as Bombardier Inc. (OTCQX:BDRBF) continues its up and down path through the stock market, with a few loopty-loops thrown in for good measure. Coming off of the heels of its C$1 billion bailout from the Quebec government and CSeries purchase orders from Air Canada Inc. (OTCQX:ACDVF) and Delta Airlines Inc. (NYSE:DAL) Bombardier was believed to be turning a corner for the better as its stock rose up to C$2.16 on the TSX. After months and years of uncertainty people had begun to believe for brighter days for Bombardier. However just a couple of months after the most recent purchase orders, all of the gains in the stock price have vanished and another production delay has brought Bombardier crashing back down to earth with its stock hitting C$1.56.
For the second time in the development of the CSeries Bombardier has been hit with a major delay because of its engines supplied by Pratt & Whitney. First there was the fire during the initial test flight stage and now delays at Pratt & Whitney means that Bombardier will only be able to deliver seven aircrafts this year instead of the projected 15. News of the delay has had an immediate negative impact on Bombardier's stock price and the company remains near the top (or at the top) of the TSX volume charts.
The CSeries program is already two and a half years behind schedule and $2 billion over budget, so any negative effect on cash flow is going to lead to trouble for the stock price, as we saw in September which was the worst month for the stock in nine months. Bombardier has also revealed that it believes that this delay will reduce free cash flow for the year by $150 million. This works against the company's goal to break even on cash flow by 2018 and it continues to add to the worries of how the company will manage its long term debt which has reached $8.96 billion, with $1.4 billion (in bonds) coming due in 2018.
Bombardier has already tried to alleviate this tension through over $1 billion in debt offerings, another $1 billion in bailout money from the Province of Quebec and the continued calling for another $1 billion from the Government of Canada. Despite its calls for Federal funding Bombardier is still unwilling to accept the governments' conditions on altering its dual-class share structure in exchange for the funds.
What is truly frustrating is that in spite of all of the issues surrounding the aerospace division, Bombardier's rail division is actually performing quite well and is perhaps the main reason the company has been able to survive the CSeries ordeal. Service contracts and purchase orders continue to pile up for Bombardier's rail division such as a $156 million contract for street cars in Sweden, a $1.2 billion contract in England for maintenance and new railcars and a new partnership with the China Railway Rolling Stock Corporation.
Figuring out what to do with Bombardier's stock has been a risky business the last couple of years: with the cash, debt and delay issues many investors have abandoned their long-term strategy for this stock. Others have been enacting shorting strategies in order to ride out the bad times, such as Bombardier is in right now with their most recent delay. Going forward there is still much uncertainty surrounding Bombardier, the luxury aviation division is projected to take a serious hit with the current high stockpile of used aircrafts in the market, which has led Bombardier to reduce its delivery forecast by 6.4%.
Bombardier has spoken about finding its next project following the completion of the CSeries program and with the release of the Global 7000 business jet in 2018, but it may not be in a stable cash position to do so. All of these issues has led S&P Global Ratings to cut Bombardier's credit rating to B- leaving investors with even more questions of what to do. With a 52 week range (TSX) of C$0.72 to C$2.28 and a recent closing price of C$1.76 there isn't a lot of hope or expectation for high amounts of long term growth for the stock.
However at the same time it does become a very good "micro-managing" option for traders looking to ride out both the highs and lows. Bombardier has gone from being a staple in mutual funds to a day traders dream, a large volatile stock which is traded more on emotion than fundamentals at the moment. Issues such as the current delay has given way for shorting options while on the other hand if another order arises or the Federal Government steps in it will bring a brief rise in the stock price which should make for some quick gains for those willing to take the risk.
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