Bombardier: Divesting Continues

Feb. 13, 2020 12:34 PM ETBombardier Inc. (BDRAF), BBD.A:CA10 Comments

Summary

  • Bombardier has $9B in debt maturing in the coming years.
  • The company has to make a decision about what unit to sell.
  • Business units carry enough value to cover debt repayments.
  • We are seeing how the company has been brought to its knees with the finish line of the turnaround plan in sight.
  • I do much more than just articles at The Aerospace Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Bombardier (OTCQX:BDRAF) is currently in a difficult spot. In 2019, its five-year turnaround plan setting objectives went bust while debt will start maturing starting 2021. In this report, we have a quick look at how Bombardier got in this situation and what its options are.

Bombardier sells unit

Source: Robb Report UK

Bombardier carries debt load without benefits

We could do an entire analysis on where it went wrong with Bombardier, possibly that's something we will do in the future, but, for now, we can point at two things that really complicated Bombardier's path. Years ago, Bombardier decided to enter the highly profitable single aisle market with a 100-140 seat aircraft that would directly challenge the core business of Airbus (OTCPK:EADSF) and Boeing (BA) at the lower side of the seating range. Aircraft developments are costly, and for Bombardier developing the C Series was no exception if you add delays to that the costs rose north of $6B.

Source: Bombardier

As Bombardier's debt maturity profile shows, the company has slightly over $9B in debt maturing up to and including 2027 and $250 million in the 2028-2034 frame and $518 million of short-term borrowings. So, the total is nearly $9.8B, of which $9.55B will mature until 2027. The development costs for the C Series play a role in that. With development costs north of $6B it accounts for more than 60% of Bombardier's debt load. Bombardier took on that debt assuming it would one day rake in the full profits. However, driven by schedule delays and associated costs and a feud with Boeing (which it won), the program was driven in the hands of Airbus which acquired a 50.01% stake, leaving Bombardier with a 34% share in the program while Bombardier's cash pile declined from $3.4B a couple of years ago to little over $2.25B in Q3 2019.

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This article was written by

Dhierin Bechai profile picture
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Dhierin is a leading contributor covering the aerospace industry on Seeking Alpha and the founder of The Aerospace Forum. With his Aerospace Engineering background he has a more indepth knowledge about aerospace products enabling him to cover a complex niche. Most of his reports will be about companies in the aerospace industry or airlines industry, comparing products and looking at market forecasts providing investors with unique and thorough insights. Dhierin has accumulated nearly 20 million views never failing to spark healthy and thoughtful discussions for investors and aerospace professionals.

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