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Why Bombardier, Inc. (TSX:BBD.B) Is Just a Big Disappointment
David Jagielski | July 15, 2018 | More on: JBLU BBD.B
This week, Airbus announced it received an order for 60 of its new A220 jets from JetBlue Airways Corporation (NASDAQ:JBLU). The A220 aircraft is the new name Airbus has given the CSeries, as it moves to further integrate it into its operations and distance the product from its former sole owner, Bombardier, Inc. (TSX:BBD.B).
While a name change on the surface doesn’t mean a whole lot, it does put an exclamation mark on Bombardier’s failure — that the company had to go down this path and give away controlling interest to Airbus. Some investors have been bullish on recent developments, saying Bombardier is a great buy, because since this venture has been undertaken, demand for the jets has grown, and many orders have been placed.
However, I disagree with that, because it simply underscores a bigger problem: Bombardier is poorly managed.
Clearly, Bombardier had a good product that has proven to be in demand, but the problem was always execution. The Canadian company has run into several issues concerning quality and late delivery of its products — not necessarily just the aircraft, but its production as a whole.
The company recently apologized to the Toronto Transit Commission for providing faulty streetcars, where a welding issue has been found in 67 cars and won’t be fixed until 2022, despite the problem being identified 18 months ago.
While it is in a different industry, this is further proof of the company’s mismanagement and poor performance. Bombardier’s reputation has been damaged by its failure to meet deadlines and an overall lack of consistency. It’s perhaps no surprise then that by having Airbus put its name behind the CSeries jets that it has provided customers with sufficient confidence to buy the planes.
Had Bombardier simply done a good job in the first place, it wouldn’t have needed to partner with Airbus and could have had benefited entirely from an uptick in sales. While there were concerns about a tariff being imposed, it would have been a knee-jerk reaction to give away half of the business just to avoid it, and if that was a considering factor, then it would look even worse given the tariffs didn’t end up being approved.
Bombardier has simply not improved, and the latest streetcar issue is just proof of that. With all of its years of experience and expertise, the company still fails at meeting expectations.
Bottom line
If you’re investing in Bombardier today, you’re taking a big risk. While some investors may point out that the stock is up over 80% since the start of the year, I’d say that over five years, its share price is only up around 9% and would be considerably worse if not for this recent climb in price.
High-risk, speculative buys are likely to take you on these wild rides, whereas over the long term, a good stock should normally rise in price with some consistency.
Bombardier is not a good buy or an investment I’d ever consider given all the problems that have plagued the company over the years.