RE:BBD at MS Laguna ConferenceThis article describes the situation of the Bomber as it is today, very well.
In fact, Management points out, and suggests (read between the numbers on Revenue expctations) that, by 2030, we'll see a $14B company with $2.2B EBIT and $2B +FCF. These are pretty strong numbers and this company will definatetly have an investment grade stock.
aviation234 wrote: MS 12th Annual Laguna Conference (+) BBD Presentation Bart Demosky, EVP & CFO; Francis Richer de la Fleche, VP, FP, & IR presenting
Room 2/3 full
HIGHLIGHTS: Demand backdrop remains strong for business jets in Bombardier’s portfolio. Management is confident in current competitive positioning. Healthy backlog has allowed BBD to increase pricing beyond inflation, which is expected to be a continued tailwind and contributor to margin expansion. BBD expects FCF of >$900mn in 2025 and is evaluating capital return to shareholders through buybacks and/or dividends. Management is focused on diversifying revenues in Services, Defense, and Pre-Owned aircraft and sees these business becoming ~50% of revenues by 2030.
NOTES: - Business Jets:
- Prior to 2020, BBD went through cash flow volatility and program spend that stretched the balance sheet too far. Selling off assets allowed BBD to focus on its strength – Business Aviation. Now a pureplay business jet manufacturer. 5,200 business jet installed base. Confident in position relative to the rest of the market. Global 7500 is a top performing jet. Competitive positioning in large cabin business jets. Periodically take on discrete smaller production in addition to new clean sheet aircraft.
- BBD’s model is to continuously refresh aircraft. New versions of Global 5500/6500 refresh in 2018/2019. Bringing Global 8000 online in 2025.
- Competition with Gulfstream: customer loyalty for Gulfstream; BBD will be a generation ahead of GD. Compete well head-to-head; BBD’s goal is to be global provider of aircraft. Not competing with Gulfstream G400.
- Pre-owned aircraft market for business jets is robust. Close to 400 transactions per year of Bombardier aircraft. New aircraft/refresh is a catalyst for incremental demand. Likely to happen to the G650 as customers buy the G700. BBD not seeing am impact to their aircraft; more idiosyncratic to Gulfstream rather than industry.
- 18-24 months ago looking at where to go next. Have the opportunity to invest and make interesting changes to fleet. Not feeling or seeing a need to do something specific. Market well served in mid-size and large cabin aircraft. Nothing major planned; technology has not advanced far enough to build a new aircraft. Sustainable aviation fuel to be the next thing to come to the industry. Confident in competitive position; no major actions until large technology advances far enough.
- Business Jet/Macro Environment:
- Past 10-15 years, biggest growth in business jets skewed towards large cabin; ongoing macro trend in industry. Currently only OEM selling large cabin aircraft to fleet operators.
- Resilient business generally but susceptible to black swan type events. As an industry, in a good place; BBD focused on getting the company into a strong financial position, so concerns are minimal when there is variability in the market.
- Continuously monitor resale market (currently 7% availability); low single digit for BBD aircraft. Flight hours are in the 15-20% range higher than 2019. Fleet activity remains strong.
- Defense showing strong growth, BBD starting to capture market share.
- Pricing:
- BBD has been able to increase pricing beyond inflation across all aircraft types for the past several years. Starts with having big backlog ($14.8bn), which stretches across every aircraft type. Huge backlog growth allows good conversations with customers about pricing; have these conversations every year. Have been able to stay ahead of inflation; focus on continuing to keep backlog healthy; likely to be a tailwind.
- Business Strategy:
- Almost all of BBD’s growth has been organic: cost reductions, new aircraft coming to market.
- Services has doubled in size (all organic).
- Retiring debt and bring interest expense down by $300-$400mn per year.
- Key catalyst is organic growth at a high rate across the business.
- Services:
- BBD fleet of aircraft continues to grow (100 per year; delivering 150; retiring 50)
- More deliveries coming from medium and large cabin; command more aftermarket revenue.
- Overall aging of fleet contributing to aftermarket growth.
- $4bn – current addressable market. Expect addressable market to grow to >$5bn over the next ~5-years. Significant portion of aftermarket growth comes from calendar events. Have been able to grow their market as they take market share.
- $2bn in aftermarket revenue this year; see potential to get to 70% of the addressable market.
- Defense:
- Position aircraft to militaries across the world. Used for surveillance, recon, early warning and detection. With creation of BBD Defense, shaping demand to business jets.
- See 400 aircraft demand for Defense aircraft – grow to $1bn-$1.5bn by 2030.
- FCF:
- Biggest influence up to 2020 was shedding business that were volatile. First step was shedding business. Second step was to execute on organic strategies. Did not count on incremental sales beyond base demand. Had a focused plan, were diligent and disciplined in their plan, executed well.
- Earnings growth has led to strong FCF conversion; FCF positive; question is what to do with excess cash and how to reward shareholders.
- Growth outlook:
- Forecasting continued strong growth across all business; strong growth in aftermarket, defense, pre-owned aircraft. Expect strong margin contributions from incremental revenue and pricing tailwinds from orders/aircraft in backlog.
- Growing earnings with strong cash conversion. >$900mn in FCF in 2025. Have planned capex spend and lower interest expense by reducing debt.
- Excess cash to be Invested back into the business but also looking at how to reward shareholders. Evaluating share buybacks and/or dividends. Looking at how to drive growth in the business long-term.