Innovation is a word long associated with Canadian business. Wherever you go in the world, you will likely find a Canadian (company) doing something few others have done, being somewhere that others fear to tread. I have a strong sense of personal and national pride having been a part of that movement and also witnessing it first-hand.
I was sitting in a business school classroom studying a case on the success of the Bombardier Challenger widebody business jet when the professor mentioned that he had just had a conversation with the company. They were asking about the potential market for a regional passenger jet based on the Challenger business jet design. Huh – in 1989, a new and innovative market segment was born and Bombardier, with their Regional Jet series, has been the world leader (according to the company).
However, all is not well and Bombardier Inc. (TSX: BBD.B & TSX: BBD.A) has become a mere shadow of its former self. Call it what you will – bad markets, poor management decisions, lousy execution or increased global competition – the fact of the matter is that the company with a combined share count of approximately 2.4 billion and a combined market capitalization of just over $1.0 billion is trading at a share price lower than any time in the past 25 years and is currently at only 1/10th the share price it was trading at in 2018.
Founded by an innovator and inventor in the 1930s, the company pioneered track-based (winter) vehicles (not tanks), created the market segment for personal snowmobiles in the 1950s (Ski-Doo) and personal watercraft in the 1980s (Sea-Doo). Since the acquisition of Canadair (and the very successful Challenger executive jet) almost 40 years ago, the company also successfully consolidated in the small-medium size aircraft manufacturing space through acquisition of Lear Jet and DeHavilland and grew their regional jet and corporate jet offerings as well.
A shining light for Bombardier would have been the development of their first commercial passenger aircraft (the 100-150 passenger C-Series). Announced in 2008 to much fanfare, the project was years late and billions of dollars over budget (estimated final development costs of ~$6 billion). So much so that in 2015, with the company on the verge of bankruptcy, the Government of Quebec invested $1 billion in the C-Series program and the company successfully looted the Quebec pension plan (Caisse de dépôt et placement du Québec) to the tune of $1.5 billion for a 30% interest in the other division of the company (trains). It wasn’t enough and fast forward – the C-Series was partially sold to Airbus Industries in 2018 (and rebranded the A220) with Bombardier fully exiting that business through the sale of their remaining interest in the A220 program in early 2020.
The dismemberment of this once-great company was also highlighted by the sale of the turboprop airplane business as well as the sale of the regional jet business in 2019 and the sale of the much-touted rail division in 2020. Deconsolidation complete.
While Bombardier now touts itself as a “pure-play” business aircraft company, the sins of the past don’t (and should not) go away nor be ignored by the market. As reported on November 5, 2020, the UK Serious Fraud Office has an active investigation over “suspected bribery and corruption” involving the company’s dealings with airline Garuda Indonesia stemming back to 2012. And so it continues.
Also reported the same day, the company’s Q3-2020 financial results estimate pro-forma liquidity of ~ $3.0 billion, including $1.9 billion of cash on hand and $275 million from the recently closed sale of aerostructures business. The company also reported long-term debt of US$9.2 billion before estimated receipt of $4.0 billion from the sale of the rail business.
As an investor, you might remark that the stock has great liquidity and trades surprisingly well but is quite volatile. You can literally almost day trade this stock – not something you would expect of a billion dollar market capitalization stock or an industry-leading company with a multi-billion dollar enterprise value and a manufacturing leader of some of the best business aircraft in the world.
Anywhere else, maybe. Any other company, possibly. But as we know, “plus ça change, plus c’est la même chose”.