Disappointments are becoming a quarterly event for Bombardier Inc. Its third-quarter earnings announcement Wednesday was no exception.
Revenue for the period ended Sept. 30 was soft at $4.3-billion (U.S.), margins were anemic and cash flow fell well short of expectations, prompting Moody's to downgrade Bombardier's credit rating outlook to "negative" from "stable." The biggest headline merely confirmed a disappointment everyone was expecting, as Bombardier delayed the first test flight of its new transcontinental C Series airliner by six months from its original December, 2012, target.
But lost in the glum headlines are a couple of points that should keep the flame of hope burning for Bombardier investors.
For one, there is no change to the overall C Series story. A delay in the test flight was widely expected, and chief executive officer Pierre Beaudoin said it was related to the company's efforts to get suppliers to deliver parts in a co-ordinated fashion to suit the firm's plans to methodically build the first test plane. Better a delay in the construction of a complex jet with 100,000 parts than greater, more expensive delays later on when the plane hits the production line, as happened to Boeing with its 787 Dreamliner jet.
Furthermore, the C Series flight delay only affects (for now) the smaller, less valuable and, so far, less popular of the two models Bombardier is selling – the 110-seat CS100, which lists for $62-million. It will have no impact on the planned 2014 entry into service of the $71-million, 130-seat CS300 plane, which has more firm and optional orders (144) than the CS100 (118).
Customers are fine, the company doesn't have to pay any penalties, and overall program costs have not been affected, according to Bombardier management. That could change – particularly if the company fails to meet its new June, 2013, deadline, but for now, the bigger picture hasn't. "As long as both aircraft are producing in 2015, that's the key," said PI Financial analyst Chris Murray. "A few months delay in the grand scheme of things over the life of an aircraft program is okay."
Meanwhile, Bombardier is in the running for a big regional jet order from Delta Air Lines; its business aircraft division, though below expectations, is doing better than most of its rivals thanks to demand for its large, long-range Global jets; and its train-making division booked $2.3-billion in orders in the quarter, up 44 per cent year over year.
Overall, margins remain weak, global business conditions are cloudy and the success of the C Series is unknown. All of that is arguably priced into the stock. What isn't is what happens if Bombardier starts to deliver some pleasant surprises. It's looks like that won't happen in 2012, but 2013 could be a different story.
Sean Silcoff