Canada / Analyst Insights
Bombardier: Grounding its Commercial Aircraft Unit

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by Ediz Ozelkan Analyst
Nov 12 2018

After years of operating losses in the aerospace segment, Bombardier Inc. is continuing myriad restructuring efforts to streamline its operations. On November 7, the company entered into definitive agreements to divest some of its noncore assets, in this case its Q Series Aircraft program and its Business Aircraft’s flight and technical training services for approximately $900.0 million. The Q Series Aircraft program, which includes the manufacture of medium-body, turbo-prop commercial aircraft, was sold to Longview Aviation Capital Corporation while the Business Aircraft flight and technical training activities were sold to CAE Inc. Expected to close after regulatory approval in the second half of 2019, this represents a crucial shift away from some of Bombardier’s legacy products and services as well as cements a long-term strategy focused on the company’s thriving growth operations, chiefly in the transportation, business aircraft and aerostructures segments.

air craft chart

While the Aircraft, Engine and Parts Manufacturing industry in Canada (IBISWorld report 33641aCA) has expanded strongly over the five years to 2018 at an annualized rate of 7.1%, Bombardier’s business aircraft, commercial aircraft and aerostructures and engineering services business segments have contributed less and less to the company’s bottom line. In 2013, Bombardier Aerospace, which comprises these three segments, generated 45.3% of the company’s earnings for the year. This shifted profoundly in 2017 to a substantially smaller 27.2% share of company profit. More recently, in the company’s third quarter 2018 filing, its aerospace segment in aggregate operated at a loss for the nine-month period compared with a rise in transportation profit margins from 5.1% to 8.0%. Although, Bombardier’s aerospace loss is centralized in its commercial aircraft segment, which precipitated the company’s divestiture.

train chart

While the company’s top line is still reliant on its legacy aerospace segment, its transportation activities, primarily located in the Train, Subway and Transit Car Manufacturing industry in Canada (33651CA), have become much more lucrative. Indeed, IBISWorld expects this industry to grow an annualized 17.5% over the five years to 2018, vastly outpacing aerospace manufacturing output. In the upcoming years, Canadian ground transportation growth potential is expected to eclipse aerospace manufacturing, with anticipated growth at an annualized rate of 4.1% compared with 3.0% over the five years to 2023. Bombardier’s long run strategy comes during a period of rapid expansion in the transportation equipment manufacturing sector and the concomitant fall in the company’s domestic market share in both industries.