The Montreal-based company dispatched a team this week to look for a new site in Canada that would mirror its existing defence manufacturing operation in Wichita, Kan., chief executive Éric Martel told analysts on a conference call Thursday. A final investment decision to go ahead with the facility could come by the end of the year, he later told reporters.
The plant would perform work on military aircraft platforms, such as the partnership Bombardier has with Hensoldt and Lufthansa Technik Defense for surveillance planes destined for the German Air Force and Cyber Command. In Wichita, Bombardier is supplying the airframes and doing structural modifications on the planes before handing them over for completion in Germany.
Mr. Martel said his team is in talks with another partner, Sweden’s Saab, about taking on a bigger slice of production on the companies’ joint GlobalEye surveillance plane program as a way to capture more economic value from the alliance. That additional work could be done at the new Canadian plant.
At the moment, Bombardier’s role in the GlobalEye program is limited to delivering the airframes and providing engineering collaboration. Saab is the main manufacturer and systems integrator – making the radar, sensors and command controls.
Interest in the GlobalEye is increasing as military spending grows. The North Atlantic Treaty Organization announced earlier this month it would open negotiations with Saab for the purchase of up to 10 GlobalEye planes at a list price of €550-million each. This week, Saab announced another order for an unnamed customer in the Middle East.
“We’re definitely looking at doing more,” Mr. Martel said Thursday. “It makes a lot of sense. We build the plane. We know the plane more than anybody else.”
The CEO was much cooler on the possibility of a joint venture between the two companies on Saab’s Gripen fighter jet.
Saab wants to further expand production capacity of the supersonic fighter outside of Sweden and has pitched the idea of building it under licence in Canada if the federal government buys the aircraft for the Canadian Armed Forces, something that’s under consideration now in Ottawa. A similar pact exists in Brazil, where local plane maker Embraer SA is assembling 15 Gripens as part of the country’s initial order of 36 jets.
Mr. Martel said Bombardier would be open to supporting Saab on the Gripen if needed. But he said Bombardier is already stretched for capacity in its own factories and that there are other companies in Canada that could also do assembly work.
“It’s not like I have lots of space available and labour available. We’re in growth mode in all our programs,” the CEO said. “So just doing assembly for someone else is less interesting for us.”
One company that could step in is De Havilland Aircraft of Canada Ltd., which is perhaps best known for its iconic yellow water bombers and rugged bush planes.
Neil Sweeney, who leads corporate affairs for the Calgary-based plane maker, told The Globe and Mail last month that it’s in talks with both Ottawa and Saab about that opportunity. “We want to build the Gripen in Western Canada,” he said.
In May, Prime Minister Mark Carney said Canada would enter into talks with Saab to buy an unspecified number of GlobalEye aircraft, picking a non-U.S. supplier as he makes good on a promise to reduce spending on American military gear. He’s also considering whether to scale back Canada’s order of 88 U.S.-made F-35 fighters and buy the Gripen instead.
In addition to building out its own network, Bombardier is also exploring acquisitions as a way to bolster its defence business, Mr. Martel said. The unit generated revenue of US$1-billion in 2025, five years ahead of the company’s internal projections.
The developments on the defence front came as Bombardier Inc. reported strong second-quarter earnings that beat analyst forecasts and posted its lowest level of long-term debt in more than 15 years. After selling the train division as well as its turboprop and regional jet units, and handing its C Series airliner program to Airbus SA, Mr. Martel and finance chief Bart Demosky have parlayed strong demand for new jets into a multiyear backlog, expanding the aftermarket services unit and improving operating margins.
Net profit for the latest quarter came in at US$191-million or US$1.84 per diluted share on revenue of US$2.15-billion. Adjusted net income grew to US$257-million or US$2.50 per share, besting analyst estimates by a wide margin. The company delivered 32 jets during the three-month period.
Free cash flow, which is the money a company generates after covering operating expenses and capital expenditures, reached US$228-million for the quarter while the value of orders booked but not yet delivered was US$21.8-billion. The manufacturer said it remains on track to meet its guidance for the year.
The stock has rallied over the past year, and Bombardier now has a market capitalization topping $36-billion. Investors now appear more focused on assessing the company’s prospects and worth rather than management’s execution.
“We are frankly surprised at how strong the stock has been,” analyst Cameron Doerksen of National Bank said in a research note this month. “We continue to be bullish on growth for Bombardier supported by strong business jet market fundamentals and growing momentum in defence, but in our view, valuation is still looking elevated.”
https://www.theglobeandmail.com/business/article-bombardier-results-long-term-debt/
