The transportation portfolio included planes, trains and snowmobiles. Bomber The 21st century was riding on as it unfolded.

But the Montreal-based company was saddled with debt as it built up those diversified businesses over decades, particularly to offset the billions it spent developing the C-Series passenger jet. was launched in 2008. Boeing and Airbus for orders from commercial airlines.

By 2018, financial and operational headwinds had become too strong, forcing Bombardier’s then-CEO Alain Bellemare to begin shedding key assets, most notably by selling Airbus the C Series program—which Rebranded as the popular A220 airline. It then divested its remaining commercial aircraft business, the Learjet brand of private jets and the railway unit. The recreational products division, which includes Ski-Doo snowmobiles and Sea-Doo personal watercraft, was spun off in 2003.

A new management team led by CEO Eric Martel and CFO Bart Demosky took control in 2020. He quickly established an ambitious, five-year strategic plan to reposition Bombardier, focusing entirely on its strongest leg: the high-flying business jet. and ancillary services industry. This is proving to be a smart calculation, based not only on Bombardier’s nearly 40 years of experience in manufacturing and marketing business jets, but also on the current state of the aviation sector.

The General Aviation Manufacturers Association reported in February that deliveries of business and general aviation aircraft last year topped 4,000 for the first time in more than a decade. Compared to 2022, all aircraft segments saw an increase in deliveries, and initial aircraft deliveries were worth $27.8 billion, a 3.6 percent increase, according to the trade association, which added that business jet deliveries 2.5% increase.

Demosky said Bombardier’s pure play strategy is based on four key pillars. The first two revolve around its highly popular Challenger and Global Business Jets, both new and certified pre-owned models, sold to well-heeled individuals, companies and fleet operators such as Flexjet, Wheels up and NetJets, Warren Buffett’s fractional ownership unit Berkshire Hathaway. The third pillar is the global network of aftermarket maintenance and repair centers, and finally the global defense market for retrofitted, special-mission military aircraft.

CEOs spend big on private jets.

No matter who owns the jets, corporate executives have taken plenty of flights in recent years. S&P 500 companies will spend $65 million in 2022 for adults to use private jets for personal travel, up nearly 50 percent from pre-pandemic levels. Three years ago, a Wall Street Journal analysis earlier this year found. CEOs benefited the most, with spending on their plane perks hitting a five-year high in 2022, according to executive compensation consultant Accular. About 45% of Equilar 500 CEOs received airline perks in 2022, while only 14.2% of CFOs received the same perk.

Of course, when the entire aviation industry was disrupted — and when commercial airlines resumed flying later this year with mandatory health restrictions, flight delays and airport chaos — such individuals and companies that could afford to buy, lease, rent or share business jets. , and demand increased. Post-Covid peak numbers are expected to moderate, but growth will continue over the long term. Honeywell said in its Global Aviation Outlook released last October that 2023 growth would still be 10 percent above 2019 levels, and demand for business jets would remain strong over the next decade.

Historically, the business jet market has been cyclical, “but it’s been hypercyclical over the last 20 years,” said Goldman Sachs analyst Noah Popunak.

He cites the period from 2003 to 2007, when demand was high and OEMs ramped up production, only to be affected by the 2008 financial crisis. Demand fell and OEMs cut production significantly, leaving them with plenty of new and used inventory. Sales of all business jets were healthy until 2020 – and then the Covid pandemic took a hit.

RBC Capital Markets analyst Walter Spracklin said the best barometer for the business jet market is the percentage of the total global fleet for resale on the used market, which generally follows overall economic conditions. “This percentage is usually in the range of 10% to 12%,” he said. “When it goes to 12% to 15%, that’s when we’re in a recession. Coming out of Covid, it was down to 3%. Everyone wanted a business jet and whatever else was out there, Willing to buy new or used.”

Today, the percentage is about 6 percent, Sprinklin said, so the demand environment is very strong.

By staying on that new course over the past three years, the company has grown revenue and earnings, cut its massive debt by nearly half and boosted free cash flow. For 2023, Bombardier reported revenue of $8 billion, up 16% year over year, driven by higher deliveries and record aftermarket revenue of $1.75 billion, also up 16%.

Adjusted EBITDA increased 32% to $1.23 billion from 2022, while cash flow generation from continuing operations reached $257 million, beating the company’s 2023 guidance. “All of that cash has gone into debt retirement, down from $10.1 billion in 2020 to $5.5 billion last year,” Demosky said.

Bombardier delivered more aircraft than any of its peers in 2023, Demosky said, ahead of OEM rivals such as Gulfstream, Embraer, Dassault and Textron. Poponek agreed, and then some. “Bombardier is closer to its delivery targets than anyone in the last three years,” he said. For 2021, the company estimates it will deliver 110 and 120 jets and has targeted the 120 mark. The target for 2022 was 120 jets and 124 were delivered and last year it achieved a target of 138 deliveries. This year’s estimate is between 150 and 155.

How the pandemic changed the course of aviation.

Demosky said the pandemic hurt a lot of things for Bombardier. Martell was with the company from 2002 to 2015. He was president of the business jet unit when he left to run HydroQuébec until 2020. Coincidentally, his first day as CEO was just as the world shut down, bringing Bombardier’s production facilities to a standstill. Canada.

“When we came back a few months later, the world had changed,” Demosky said, particularly with severe disruptions to supply chains. “Many of our peers reduced their supply chain capabilities, but we decided to expand our capabilities,” based on the expectation of increased demand for business jets from the pandemic. “Being agile has allowed us to stay ahead of the curve with supply chain challenges and deliver on commitments and grow our business faster and more efficiently than our peers,” said the CFO. ” said the CFO.

Bombardier produces three versions of two classes of business jets, the mid-size Challenger and the large-cabin, long-range Global. The largest and fastest is the 19-passenger Global 7500, capable of speeds up to Mach 0.925. An upgraded 8000 model is slated for release later this year. Order activity for both the Challenger and Global (model) is very strong, Demosky said. “We are number one or two in terms of sales and deliveries of medium and large aircraft in every geographic segment.”

To help keep that growing fleet in the air, the company has expanded its aftermarket service business, which now operates 10 centers spread across the U.S., Europe and Asia, and 2 billion this year, Demosky said. Dollar revenue is estimated.

Another growth opportunity is the defense segment, which has sold jets to air forces around the world for nearly 30 years. He said, “We took a strategic decision a few years ago to invest in our capacity to grow this business, not only in the supply of aircraft, but also in other value-added services – maintenance, engineering services and in providing correctional services,” he said.

Bombardier is entering the final stretch of its five-year transformation and has achieved significant success as a stand-alone business jet company. Even so, investor feedback has been “very interesting,” Spracklin said. “Many, especially Canadian investors, have had a long history with this company, so initially, there was some skepticism about buying back into Bombardier, but they changed those skepticism. Doing. It’s a work in progress, but a work in progress. In the right direction.”

Poponak offered a similar assessment. “Overall, the investment community hasn’t come full circle,” he said. “Whenever a company and a stock goes through a long period of challenges, even after doing something wrong, fixing the problems and making it a good business, the market seems to have a window to see it for several years. Need to deliver (positive results) before he can break the company from its past, but it will probably be a few more years before they are completely out of it.

Although Bombardier’s stock has fluctuated over the past 52 weeks, from a high of around $54 last March to a low of around $30 in October, the company could fall short of their guidance and still do well this year. Their stock should rise.

Demosky acknowledged that at the beginning of the repositioning, “there were doubts about whether we could turn the company around as well as we believed we could,” he said. “I’m happy to say that those underdogs are now few and far between. We’ve met or beaten guidance in the last 13 quarters, so I think we have the momentum to support that view. There’s a track record that we can execute. Our job is just to continue to execute.”