Bombardier will see better days soon, say analysts

Bombardier is set for a smooth takeoff if it can fly through its ongoing economic financial turbulence, thanks to the strong demand at its aerospace and transportation divisions. Business aircraft are in demand, regional jet orders have recovered and the transportation division is getting new business from emerging markets.

The Montreal-based company is expected to report strong second-quarter earnings when it announces quarterly results on 29 August. Company sources projected its revenues for the period ended 31 July at $4 billion, an increase of nearly 15 per cent.

Net earnings should be around $93 million, an EPS of five cents per share, up from $57 million, or three cents. Regional jet revenues are expected to be 22 per cent higher than in the same period of the past year, driven by higher deliveries of turboprops.

The company is riding the wave of a booming airline industry, but it has also moved to lower costs and improve profitability, in part, by moving production to Mexico, analysts say. It recently signed a deal with the China Aviation Industry Corporation (AVIC 1) to build components of a possible CSeries wide body aircraft in China at a lower cost. But Bombardier also faces economic factors beyond its control, including recent market turbulence and the vagaries of the Canadian dollar.

Even events like the recent market meltdown can have an impact on the company, especially in the business jet segment, which is more sensitive to the US economic cycle.

But Bombardier is well positioned for more regional aircraft orders. US carriers will be in a mood to buy after exiting bankruptcy court protection. Longer term, the transportation markets in India, Russia and China are expected to become key drivers.

The company recently announced a $590 million contract for the Delhi metro, and is looking for similar opportunities in other Indian cities. The total mass transit market potential is $3 billion over five years.

The Russian market is expected to grow to more than $2.5 billion a year by 2010, driven mainly by an urgent need for a new generation of modern electrical locomotives. Chinese opportunities could be worth more than $8 billion over three years.

Even in Europe and North America, there is strong replacement demand because of congestion and aging fleets, the company feels. With a record backlog of $30 billion as on 30 April, the focus for Bombardier Transportation is on execution. The company recently took a $164-million write-off relating to its Metronet public private partnership to rebuild London's subway.