The Ouster Of Bombardier’s Aviation President Is Indicative Of Further Turmoil

On Thursday, Bombardier announced the dismissal of Aviation unit President David Coleal and the elimination of the position, saying that it simplifies the corporate leadership structure. While the move caught many off guard, it’s not surprising for a company dealing with a plethora of simultaneous challenges.

The announcement comes on the heels of Spirit AeroSystems’
SPR
warning last week that it was uncertain about closing on its $500 million acquisition of Bombardier’s aerospace structures plants in Northern Ireland and Morocco. The sale of Bombardier’s rail division is still expected to close in the first quarter of next year, but not before buyer Alstom used Bombardier’s position of weakness to write itself a nearly billion dollar discount from its original offer. Fortunately, the sale of its CRJ Series aircraft program to Mitsubishi closed in June.

Through divestitures, Bombardier has now whittled itself down to a pure-play business jet manufacturer, the timing of which could not be worse. Business jet deliveries fell 26.7% in the first half this year compared to the same period in 2019, driven by Covid-19 factory and supplier disruptions. It’s anticipated that by year-end, 2020 will be below the previous year by a similar percentage due to soft jet sales.

Bombardier has historically been the most undisciplined manufacturer when it comes to heavily discounting newly built unsold airplanes known as white tails. Cash flow and holding cost avoidance trump profit margins. This now predictable reaction causes consternation for its competitors — General Dynamic’s
GD
Gulfstream, Dassault, Textron’s
TXT
Cessna, and Embraer — who tend to exercise more fiscal restraint. Bombardier’s actions erodes the industry’s pricing power, which can take years to recover to previous levels.

This cycle has already begun, with its latest, top-of-the line, brand-new Global 6500 and Global 7500 business jets available for immediate delivery. The more mature Challenger 350 at times had been seen as available as well. Compounding matters, field reports suggest that during the first half Bombardier only sold a fraction of its planned annual production, estimated to be over 100. Unless the sales situation soon improves and/or production is reduced, there is a chance for the white tail inventory to further increase, leading to even more discounting and holding costs.

Bombardier is not the only business jet manufacturer to bear a cross in today’s business market. It’s just that their cross is a lot heavier than the others.

Source Article