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Radu Haraga
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I have been working for all my professional life (more than 10 years now) in finance for American and UK companies. I could say I saw them all - how it is for a company to live cash rich or strapped, how to grow or how to shrink your business, how are the investments decisions taken... My... More
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  • Is Bombardier a Safe Bet? 0 comments
    Jun 3, 2009 5:01 AM | about stocks: BDRAF

    Seeking Alpha featured recently a website section on airlines and airplane-building companies. One of the articles of the section was very directly named: "Bombardier: Despite Low Q1 Expectations, Shares Look Compelling - UBS".

    Despite the strong reccomendations to buy issued by the UBS analyst, I told myself that a little bit more research cannot hurt anyone. So, armed with my Gridstone Research account, I crunched a few numbers on Bombardier.

    First of all, the number of airplanes delivered. Although the Canadian group finalised only 25 Eagle airplanes in March 09, this is still a good indicator indeed that the contracts are not being cancelled and that the business still produces something.

    Furthermore, looking at the documents surrounding the Bombardier company, there were lots of disclosures from various airlines showing the leasing agreements they had with the company. Leasing usually indicates a long term commitment to a purchase, so the various regional airlines which disclosed leasing agreements with Bombardier (most of these for Q1 2009) should be in their sales bucket for more than one year from then on.

    There is certainly not a shortage of airplane orders for the Canadian builder. Several suppliers signed very long term agreements (some for 20 years) with Bombardier, indicating that it wants to secure several areas of expertise. Besides flight simulators, Bombardier signed contracts for the propulsion system or for various hull alloys.

    At last (but not at least), my indirect research shows that the market for Bombardier airplanes is quite diversified. Most of the small and medium US and Canadian carriers have purchased airplanes from Bombardier. The company is indeed focusing on  the small airplanes market, but this is not their exclusive target. Among major airlines, Delta is also purchsing 44 CRJ-900 aircrafts featuring 76 seats each for short haul flights. With the recent trend of all the major airlines to focus on the profitability of the short term routes (perceived again as a mjor source of profitability), Bombardier seems to be well placed to enter even more contracts.

    Although I had no access to their cash flow figures, the indirect research data indicates that Bombardier looks to be more than a "going concern" company. Their ongoing orders might be enough in scale to help them pass over the crisis, so the reccomendation to buy seems to be justified...


    Stocks: BDRAF
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