Desjardins: Next big order to come soonFlexjet preparing major order for upcoming NBAA—could be a game-changer for BBD
The Desjardins Takeaway: Positive
This morning, bizjet industry expert Doug Gollan reported that Flexjet (second largest fractional bizjet provider) will likely place a large order for jets next month during the NBAA event (October 1719 in Las Vegas). Meanwhile, at the opening of Flexjet’s new headquarters and operations centre outside Cleveland, Chairman Kenn Ricci was quoted as saying: “We will have an order in the fall at NBAA, and it really results from the fact that we fulfilled both our Embraer and our Bombardier orders. We’ve taken all the aircraft under those orders. We’ll be doing something notable”.
We note that Flexjet’s current fleet comprises Embraer’s Phenom and Praetor, BBD’s Challenger and Global, and Gulfstream’s G450 and G650s. Overall, the company will have 269 aircraft by year-end, with more than 300 by the end of 2024 based on current delivery schedules.
Combining this morning’s news with an earlier Aviation Week report that Gulfstream will be absent from the NBAA (citing a review of marketing investments and private events), we believe that BBD is very well-positioned to win Flexjet’s sizeable order; in our view, Gulfstream would be attending if it had something to announce, so its absence is very telling. With regard to Embraer, Flexjet’s other OEM provider, following its recent long-term deal for 250 aircraft with NetJets (announced in May; see our Express Pulse), we believe its hands will be very full and that it is unlikely to bid on additional orders as it concentrates on fulfilling this production commitment (guiding for a significant uptick in production this year; NetJet deliveries will begin only in 2025).
By a process of elimination and given the strong historical relationship between BBD and Flexjet, we are cautiously optimistic that BBD will win Flexjet’s new order. In terms of size, with Flexjet’s chairman stating that it will be “notable” and given that the company has placed sizeable orders with BBD in the past (245 aircraft for US$5.2b back in 2013), we conservatively expect an order in the range of 25+ aircraft. A sizeable order would likely give investors much more confidence that BBD will be able to end the year with a book-to-bill of 1x and with FCF in positive territory—which was much debated by the market following 2Q results, pushing the stock down an unjustified -19% in our view (vs the S&P/TSX at +1%). Additionally, if the order is sufficiently large, we believe this could push BBD’s production rate above the targeted 150 for 2025 (it has flexible capacity for up to 200 aircraft/year).