TD on the CH 3500 orderBombardier Announces Firm Order for 12 Challenger 3500
Event
Bombardier announced that it has received a firm order for 12 Challenger 3500 aircraft.
The transaction is valued at US$326.4 million based on list prices. Deliveries are expected to begin in the second half of 2025.
Impact: NEUTRAL
The majority of Bombardier's business aircraft orders are not announced at the time of award, but disclosed with each quarterly report. Although any orders are generally positive in terms of financial and product demand implications, without knowledge of total orders for Q4/23, we do not believe investors should view this announcement as material to the financial outlook for the company. The order compares to our 2023 forecast for 138 deliveries. Business aircraft OEM's have been suggesting that bookto-bill ratios of approximately 1x are achievable in 2023. We believe that investors should be encouraged if Bombardier ends the year close to 1x, although less than would not alter our view of the share price upside.
We anticipate that Bombardier's recent order activity, including 2023, supports delivery growth through at least 2025, although we believe that book-to-bill ratios should continue to slow from the strength of 2021 and 2022. Book-to-bill is just over 1x ytd, and 1x over the past four-quarters.
The Challenger 3500, a refresh of the Challenger 350, was launched on Sept. 14, 2021, and entered service in Q4/22. It flies up to 3,400 nautical miles, and can carry up to 10 passengers. The company has previously indicated that it has the lowest direct operating costs in its class.
We believe that Bombardier's backlog provides good earnings visibility through 2025, and although business jet activity is moderating from the unsustainably high levels of H1/22, we view the moderation as constructive for limiting long-term volatility and the health of the cycle. Our target multiple of 8.0x represents a 20% discount to its comp-group five-year pre-pandemic average, and compares with the current forward multiple of approximately 6.3x.