A few days after his retirement from commercial aviation, the Canadian Bombardier accelerated its deleveraging strategy by selling its rail sector to Alstom to refocus on the juicy business aircraft market.
“A promising new chapter is opening today for Bombardier,” said CEO Alain Bellemare, announcing the group's “strategic decision” to focus exclusively on business aviation to stay alive.
“From now on, we will focus all our capital, all our energy and all our resources on accelerating growth and expanding the margins of our business aircraft activities,” he said in a statement.
For most industry observers, this decision to focus on business aviation had become inevitable for Bombardier, given the group's leadership role in this sector.
“We have a Quebec flagship that will survive,” said Pierre Fitzgibbon, Quebec’s Minister of the Economy after the announcement of a memorandum of understanding for the sale of the railway division to Alstom.
The business aircraft branch employs some 18,000 people worldwide, mainly in Canada, especially in the Montreal and Toronto regions. According to Bombardier, it must record sales of approximately US $ 7 billion in 2020.
– High profit margin –
“In business aviation, the profit margin is much higher than in commercial aviation,” Mehran Ebrahimi, an aeronautical expert at the University of Quebec in Montreal, told AFP recently.
“The planes are sold individually or to lessors who do not have the same balance of power to negotiate very significant price reductions, so the room for maneuver is much greater. Alain Bellemare has staked everything in the business aviation and I think he was right, “said Ebrahimi.
Bombardier has been active in this niche for more than thirty years, having delivered more than 4,800 aircraft over time.
Its range, from the smallest to the largest aircraft, includes the Learjet, the Challenger and the Global, the latter two available in several models.
For some time now, the business aircraft branch has been Bombardier's most profitable, mainly thanks to the Global 7500, the latest addition to the group and the largest aircraft in the world in this niche.
Bombardier delivered eleven of these private jets in 2019, sold at a list price of 72.8 million U.S. dollars, and expects to ramp up deliveries in 2020, with 35 to 40 aircraft expected.
– “Top of the line” –
The Global 7500 can transport up to 19 passengers and 4 crew members, at a cruising speed of 955 km / h, and fly nonstop over a distance of 13,705 km.
The activity of this branch is by nature more cyclical than that of railways and Bombardier's main competitors in this sector, such as Embraer, General Dynamics, Textron or Dassault, can count on their military sales to compensate for the vagaries of the economic situation.
However, with the Global 7500 developed at a cost of more than $ 4 billion, Bombardier has an advantage over its competitors, according to analysts.
“It is in the high end, it is the billionaires who buy that (…), there are no cyclical considerations on their part”, underlined to AFP Michel Nadeau, director of Institute on governance, a renowned research center in Montreal.
In addition, the Bombardier business aircraft branch derives approximately 15% of its turnover from the maintenance of 4,700 aircraft in service worldwide, a constant activity, wrote in a recent note Benoît Poirier, analyst at Desjardins Valeurs furniture in Montreal.