Private jet travel is becoming increasingly popular among the business elite, and Bombardier is profiting from it.

• In 2022, CEOs of S&P 500 companies received approximately $65 million in private jet travel perks, which is a 50% increase from pre-pandemic levels, according to Equilar.
• To concentrate solely on business jets, Bombardier divested itself of most of its diverse transportation offerings, which encompassed snowmobiles, Sea-Doo watercraft, aircraft, and trains, amidst increasing debt.
• Despite a decrease in private jet use from its 2022 peak, Bombardier's strategy, introduced in 2020, is well-received by analysts who anticipate continued, albeit more moderate growth in private air travel.

As the 21st century unfolded, the transportation portfolio consisted of planes, trains, and snowmobiles.

The Montreal-based company was also carrying a significant amount of debt accumulated during the development of various businesses over several decades, particularly the billions spent on the C Series passenger jet, launched in 2008 to compete with Boeing and Airbus for commercial airlines orders.

In 2018, Bombardier's CEO Alain Bellemare was forced to sell off key assets due to financial and operational challenges. The most prominent sale was of the C Series program to Airbus, which was later rebranded as the A220 airline. This was followed by the divestment of the Learjet brand of private planes and the railway unit. The recreational products entity, which included Ski-Doo snowmobiles and Sea-Doo personal watercraft, had already been sold in 2003.

In 2020, a new management team led by CEO Éric Martel and CFO Bart Demosky took over control of Bombardier. Immediately, they created a five-year strategic plan to reposition the company, with a primary focus on the high-flying business jet and ancillary services industry. This decision is proving to be a wise one, considering Bombardier's 39 years of experience in manufacturing and marketing business jets and the current state of the aviation sector.

In 2022, the General Aviation Manufacturers Association reported that deliveries of business and general aviation aircraft reached a 10-year high of over 4,000. All aircraft segments experienced increases in shipments, with preliminary deliveries valued at $27.8 billion, up 3.6% from the previous year. Additionally, business jet deliveries increased by 2.5%.

Bombardier's pure-play strategy is centered on four main pillars, according to Demosky. The first two involve its highly respected Challenger and Global business jets, which are sold to affluent individuals, companies, and fleet operators such as Flexjet and NetJets, the fractional-ownership unit of Warren Buffett's. The third pillar is the global network of aftermarket maintenance and repair centers, and the final pillar is the global defense market for retrofitted, special-mission military aircraft.

CEOs spending big on private planes

Private jets have been in high demand among corporate executives in recent years, with spending for their aircraft perks reaching a five-year high in 2022.

The aviation industry was disrupted due to Covid-19, and when commercial airlines resumed flying with health restrictions, individuals and companies that could afford to buy, lease, rent, or share business jets did, resulting in a surge in demand. Although post-Covid peak numbers are expected to moderate, the growth in demand for business jets is expected to continue over the longer-term. Honeywell predicts that 2023 growth will still be 10% above the 2019 level, and demand for business jets over the next decade will remain strong.

In the past 20 years, the business jet market has experienced extreme fluctuations, according to Noah Poponak, an analyst for Goldman Sachs.

The period from 2003 to 2007 saw high demand and OEMs ramping up production, but this was followed by the 2008 financial crisis, which caused demand to collapse and led to significant cuts in production. Despite healthy sales of business jets leading into 2020, the Covid pandemic hit and caused a decline in demand.

According to RBC Capital Markets analyst Walter Spracklin, the percentage of the total global fleet up for resale on the used market is the best barometer for the business jet market. Typically, this percentage ranges from 10% to 12%. When it goes up to 12% to 15%, it indicates a recession. After coming out of Covid, the percentage went down to 3%. Everyone was eager to buy a business jet, regardless of whether it was new or used.

According to Spracklin, the demand environment is very strong since the percentage is approximately 6%.

Over the past three years, the company has grown revenue and earnings, reduced its massive debt nearly by half, and expanded free cash flow. In 2023, Bombardier reported revenues of $8 billion, up 16% year-over-year, driven by higher deliveries and record-setting aftermarket revenues of $1.75 billion, also up 16%.

In 2022, adjusted EBITDA increased by 32% to $1.23 billion, while cash flow from continuing operations was $257 million, surpassing the company's 2023 guidance. Demosky stated that all of the cash generated was used for debt retirement, resulting in a decrease from $10.1 billion in 2020 to $5.5 billion in 2021.

In 2023, Bombardier surpassed its peers in aircraft deliveries, with Gulfstream, Embraer, Dassault, and others being its competitors, according to Demosky. Poponak agreed and added that Bombardier has been closer to its delivery targets than any other company in the last three years. For 2021, Bombardier estimated it would deliver between 110 and 120 jets and hit the 120 mark. In 2022, the target was 120 jets, and 124 were delivered. Last year, the company reached its goal of 138 deliveries. The estimate for this year is between 150 and 155 deliveries.

How the pandemic changed aviation's course

Bombardier's production facilities in Canada were halted on Martel's first day as CEO, coincidentally, as the world shut down due to the pandemic.

"When we returned a few months later, the world had changed significantly, with severe interruptions throughout supply chains," Demosky stated. "Many of our peers reduced their supply chain capabilities, but we decided to increase ours, anticipating an incremental demand for business jets coming out of the pandemic," the CFO explained. "Being proactive allowed us to overcome supply chain challenges and meet our commitments on deliveries, enabling us to grow our business more rapidly and effectively than our peers," Demosky added.

Bombardier offers three versions of two classes of business jets, including the mid-size Challenger and the large-cabin, long-range Global. The fastest and largest of the two is the 19-passenger Global 7500, capable of reaching speeds up to Mach 0.925. An upgraded 8000 model is set to be released later this year. According to Demosky, order activity for both the Challenger and the Global models remains very strong, with Bombardier being either the number one or two in sales and deliveries of medium and large aircraft in every geographic segment.

The company has expanded its aftermarket service business and now operates 10 centers across the U.S., Europe, and Asia, with projected revenues of $2 billion this year, according to Demosky.

Another growth opportunity is the defense segment, which has been selling jets to air forces worldwide for nearly three decades.

Bombardier has achieved success as a stand-alone business jet company after five years of transformation. Despite initial skepticism from investors, particularly Canadians who have a history with the company, feedback has shown that they are converting their doubts. The progress is ongoing, but it is moving in the right direction.

Poponak concurred with the statement that the investment community is hesitant to fully embrace a company that has faced challenges and made mistakes, even after improvements have been made. He explained that it takes time for the market to trust the company's ability to consistently deliver positive results before it can fully move on from its past.

Despite Bombardier's stock fluctuating over the past 52 weeks, from a high of around $54 last March to a low of almost $30 in October, the company can still achieve less than their guidance and still see their stock go up this year, according to him.

Demosky stated that initially, there were doubts about the company's ability to turn around and perform as well as expected. However, he is pleased to report that these doubters are now few and far between. Over the past 13 quarters, the company has met or exceeded guidance, demonstrating a successful track record. Demosky emphasized that the company's job is to continue executing.