- According to Equilar, S&P 500 companies will spend $65 million in 2022 to allow big names to use private jets for personal travel, an increase of about 50% from pre-pandemic levels, and about 45% of the largest CEOs. He reportedly received airline benefits.
- As debt mounted, Bombardier cut much of its transportation portfolio, which ranged from snowmobiles and Sea-Doo watercraft to planes and trains, to focus solely on business jets.
- Recent data shows private jet usage has declined from its peak in 2022, but Bombardier's strategy implemented in 2020 has led analysts to expect continued slow but continued growth in private air travel. popular among
Planes, trains, and snowmobiles made up the transportation portfolio used by Bombardier as the 21st century progressed.
But the Montreal-based company also has significant debt incurred over the decades building up these diverse businesses, most notably in 2008 as it competed with Boeing and Airbus for commercial airline orders. Such was the billions of dollars invested in the development of the C-series airliner, which was launched in 2013.
By 2018, the financial and operational headwinds had become so strong that Bombardier's then-CEO Alain Bellemare was forced to begin selling major assets and A notable example was the sale of Airbus' C-series program, which was rebranded as the popular airline A220. It subsequently sold its remaining commercial aircraft business, the Learjet brand of commercial aircraft, and its rail division. His recreational products business, which featured Ski-Doo snowmobiles and Sea-Doo watercraft, was eliminated in 2003.
A new management team took the helm in 2020, led by CEO Eric Martel and CFO Bart Demosky. They immediately developed an ambitious five-year strategic plan to reposition Bombardier, focusing on its sturdiest legs: high-flying business jets. and ancillary service industries. This has proven to be a wise calculation based not only on Bombardier's nearly 40 years of experience in manufacturing and selling business jets, but also on the current state of the aviation industry.
Deliveries of business and general aviation aircraft exceeded 4,000 last year for the first time in more than a decade, the General Aviation Manufacturers Association announced in February. Compared to 2022, shipments increased across all aircraft segments, with preliminary aircraft deliveries valued at $27.8 billion, an increase of 3.6%, according to the industry group, adding that business jet deliveries increased by 2.5%. Ta.
Demosky said Bombardier's pure play strategy is based on four key pillars. The first two revolve around the highly regarded Challenger Business Jet and Global Business Jet, with both new and certified pre-owned models being fractional ownership units of wealthy individuals, corporations, and Warren. It is sold to fleet operators such as Flexjet, Wheels Up, and NetJets. Buffett's Berkshire Hathaway. The third pillar is a global network of aftermarket maintenance and repair centers and, finally, a global defense market for refurbished special mission military aircraft.
CEO is spending a lot of money on private planes
No matter who owns the jet, corporate executives have been flying a lot these days. S&P 500 companies will spend $65 million in 2022 on major corporations using private jets for personal travel, an increase of about 50% from pre-pandemic levels. That was revealed three years ago in a Wall Street Journal analysis earlier this year. CEOs benefited the most, with spending on aircraft perks reaching a five-year high in 2022, according to executive compensation consultant Equilar. In 2022, approximately 45% of Equilar 500 CEOs received aircraft benefits, while only 14.2% of CFOs received the same benefits.
Of course, when the entire airline industry was in turmoil, and when commercial airlines resumed operations later that year amid mandated health restrictions, flight delays and airport disruptions, I bought a business jet. , individuals and businesses who could afford to lease, rent, and share , saw a surge in demand. Although peak numbers are expected to slow post-COVID-19, growth will continue in the long term. In its World Aviation Outlook released last October, Honeywell said growth in 2023 will remain 10% above 2019 levels, and business jet demand will remain strong over the next decade.
Goldman Sachs analyst Noah Poponak said the business jet market has historically been cyclical, but “the last 20 years have been very cyclical.”
He cited the period from 2003 to 2007, when demand was high and OEMs ramped up production, followed by the 2008 financial crisis. Demand collapsed, and OEMs slashed production, leaving large inventories of new and used products. All business jet sales were strong leading up to 2020, but then the coronavirus pandemic hit.
RBC Capital Markets analyst Walter Spraklin said the best barometer for the business jet market is the percentage of global aircraft that are resold on the used market, which generally follows overall economic conditions. . “That percentage is typically in the 10% to 12% range,” he says. “When you go from 12% to 15%, that's when you're in a recession. Since the pandemic, we've been down to 3%. Everyone wants a business jet, and they're happy with whatever is out there, new or used. I started buying it.”
Currently, that percentage is about 6%, and the demand environment is very strong, Spraklin said.
An aircraft is assembled at the Bombardier Challenger Assembly Hall during Bombardier's 2023 Investor Day in Dorval, Quebec, Canada, March 23, 2023. (Photo by ANDREJ IVANOV/AFP) (Photo by ANDREJ IVANOV/AFP, Getty Images)
By staying on that new path over the past three years, the company has grown revenue and earnings, cut its massive debt by nearly half, and grown free cash flow. Bombardier reported sales of $8 billion in 2023, an increase of 16% from the previous year. This was due to increased deliveries and record aftermarket sales of $1.75 billion, also up 16%.
Adjusted EBITDA increased 32% from 2022 to $1.23 billion, and cash flow generation from continuing operations reached $257 million, exceeding the company's 2023 guidance. “All of that cash went toward debt repayments, down from $10.1 billion in 2020 to $5.5 billion last year,” Demosky said.
Demosky said Bombardier delivered more aircraft in 2023 than its peers, citing OEM competitors such as Gulfstream, Embraer, Dassault and Textron. Mr. Poponak agreed, and so did some others. “Bombardier has come closer to our delivery goals than anyone else over the past three years,” he said. The company estimates it will deliver between 110 and 120 jets in 2021, and that number has reached the 120 mark. The goal for 2022 is 120 aircraft, and 124 aircraft were delivered, and last year the set goal of 138 aircraft deliveries was achieved. The number of deliveries this year is expected to be 150 to 155 units.
How the pandemic changed the course of the airline industry
Demosky said the pandemic has turned a lot of things upside down for Bombardier. Mr. Martel was with the company from 2002 to 2015. He was president of the business jet division until 2020, when he left to run Hydro-Québec. Coincidentally, his first day as CEO coincided with the global economy shutting down and Bombardier's production facilities shutting down. Canada.
“When we came back a few months later, the world had changed,” Demosky said, noting that there had been severe disruptions, especially across the supply chain. “While many of our industry peers have reduced supply chain capacity, we made the decision to increase supply chain capacity in anticipation of increased demand for business jets from the pandemic.” “By being proactive, we can proactively address supply chain challenges, meet delivery commitments, and grow our business faster and more effectively than our peers.” I was able to do that.''
Bombardier makes three versions of its two-class business jet: the medium-sized Challenger and the large-cabin, long-range Global. The largest and fastest is his 19-seater Global 7500, capable of speeds up to Mach 0.925. The upgraded 8000 model is expected to be released later this year. “Order activity remains very strong for both challenger and global companies.” [models]”We are either number one or number two in terms of sales and deliveries of medium and large aircraft in every geographic segment,” Demosky said.
Bombardier Global 7500 business jet photographed during the presentation of the global business airline's newest aircraft at Geneva Airport on March 3, 2022.
To keep its growing fleet in service, the company has expanded its aftermarket services business, which now operates 10 centers across the U.S., Europe and Asia, and is expected to generate $2 billion in revenue this year. Demosky said.
Another growth opportunity is in defense, where the company has been selling jets to air forces around the world for nearly 30 years. “We made a strategic decision several years ago to invest in the ability to grow that business, not only in the delivery of aircraft, but also in the provision of value-added services such as maintenance, engineering services and modification services. '' he said.
Bombardier is in the final stages of a five-year transformation, with clear success as an independent business jet company. But feedback from investors has been “very interesting,” Spracklin said. “Many investors, particularly Canadian investors, were initially skeptical about buying back Bombardier because of their storied history with the company, but they are changing their skepticism. This is a work in progress, but it is definitely moving in the right direction. ”
Mr. Poponak offered a similar assessment. “Overall, the investment community has not fully recovered,” he said. “Every time a company or a stock does something wrong and experiences long periods of difficulty, the market needs to consistently look ahead for several years, even after fixing the problem and making it a good business.” I feel that.Delivery [positive results] Before separating the company from its past. Investors are coming in, but it will probably take a few more years to fully divest from them,” he said.
Bombardier's stock price has fluctuated over the past 52 weeks, from a high of about $54 last March to a low of almost $30 in October. It could still rise, he said.
Demosky admits that at the beginning of the reassignment, “there were doubts as to whether we would be able to rebuild the company and perform as expected.” “I am pleased to say that these naysayers are now largely gone. We have met or exceeded guidance for the past 13 quarters, and we believe we have a track record to support our view that we can deliver. Our job is just to keep executing.”
