Bombardier was able to avoid a liquidity crisis earlier this year by selling its rail transportation business to Alstom for $8.4 billion. Just recently, Alstom started to raise an additional €2 billion to finance the deal and a few weeks ago it also announced that all the needed regulatory approvals have been received. Considering this, the completion of the deal is only a matter of time and this is good news for Bombardier since the company would've likely declared bankruptcy if European regulators disapproved the sale.
After the news started to surface in late November that the deal will soon be completed, Bombardier's stock started to appreciate and it's currently up more than 80% since our latest article on the company was published. However, Bombardier still trades in a penny stock territory and we stick to our opinion that it will be hard for the company to create shareholder value in the long term by competing only in the corporate aviation industry.
![](//static.seekingalpha.com/uploads/2020/12/48206420_16093665585016_rId9_thumb.jpg)
Chart: Seeking Alpha
Due to the pandemic, Bombardier's overall Q3 revenues of $3.5 billion were down 5.9% Y/Y, while its non-GAAP EPS of -$0.13 was below the estimates by $0.02. In addition, its adjusted EBITDA during the period was $176 million, below the adjusted EBITDA of $255 million a year ago. The revenues of the aviation business were also down 10% Y/Y to $1.4 billion from July to September, while its January-September revenues of $4.2 billion were down 18% Y/Y. As for the deliveries, in Q3 Bombardier delivered 24 jets, which is a decrease from 31 jets a year ago, and at the end of September, it had a $12.2 billion backlog.
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Source: Bombardier
After the completion of the Alstom deal in 2021, Bombardier will still have a net debt position of around $4.5 billion. While this number is significantly below the current net debt position of $8.91 billion, it's still substantial, especially for a corporate jet manufacturer that has recently experienced a decline in sales and deliveries. Considering this, Bombardier will likely recapitalize its debt in order to extend its maturities and keep the debt situation under control. However, we're still finding it hard to believe that the company will be able to create substantial shareholder value in the long term even after the deal is completed and the debt is recapitalized. In its latest earnings call, Bombardier's management said that the company needs to deliver 100 to 120 planes per year in order to reach a breakeven point. Considering its latest performance, it's unlikely that it'll be able to achieve it anytime soon. For that reason, it's hard to justify a long position in Bombardier.
The biggest problem of Bombardier is that it doesn't have any major competitive advantages against its corporate jet rivals. In addition, its major peers like General Dynamics (NYSE:GD), Dassault Aviation (OTCPK:DUAVF), Textron (NYSE:TXT), and others are much more diversified, since they're also developing planes for the military aviation industry too. As a result, they have more resources to compete, and they're not exposed to one industry only, which is a big advantage in the current environment.
Also, several startups are now developing their own supersonic jets. Even Boeing (NYSE:BA) has a significant interest in one of the companies and the overall investments in the sector have increased in recent years. If civilian supersonic travel becomes a reality once again by the end of the decade, Bombardier will have a hard time to compete in the industry since it will take a while for it to deal with its current shaky financial situation before investing in the new and expensive projects.
Considering all of this, it's likely that Bombardier will trade higher from the current levels in the next couple of months, as we are nearing the completion of the deal with Alstom. However, in the long term, it's unlikely that Bombardier's momentum will hold and that the company will be able to create additional shareholder value. For that reason, we have no position in Bombardier.
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