Bombardier: Look for Major Changes in 2008

This year may be one of radical change for Bombardier Inc. (BDRAF.PK) since the high Canadian dollar may prove to be a catalyst for an overhaul of its aerospace division. That’s the opinion of Nick Morton, an analyst at RBC Capital Markets, who hiked his price target on Bombardier by a dollar to C$8 per share, and suggested that it is showing strong evidence of a turnaround.

He noted that this one-year target is independent of possible M&A activity for its train business, where Russia, China and Korean train manufacturers were all cited as possible partners.

“We view Bombardier as an attractive investment opportunity,” he said in a note to clients, pointing to booming business, record backlogs for both its aerospace and transportation divisions, dramatic free cash flow growth and an improving balance sheet on reduced debt.

Mr. Morton thinks industry-wide changes are coming in both aerospace and transportation, so Bombardier can “either determine its own future from a position of strength, or do nothing and potentially lose its leadership as others overtake it.” The route he recommends is through strategic alliances.

Mr. Morton also noted that Bombardier does not have the financial backing to go it alone in aerospace, which he considers a “high profile, high technology, industry which is greatly valued by governments.” Instead, political/trade relationships may be the answer, particularly with China’s state-controlled aviation company.

Another option he raised is to combine Bombardier business jets with another manufacturer to share development costs.