Bombardier Inc. T.BBD.A

RBC

[retiredcf]

October 21, 2024

Bombardier Inc.
Connecting The Dots: BBD flash read-through – Honeywell’s Business Aviation Outlook

TSX: BBD.B | CAD 105.99 | Outperform | Price Target CAD 133.00

Sentiment: Positive
Our take: We see the read-through for Bombardier from Honeywell's 33rd annual Global Business Aviation Outlook as positive.

Key takeaways are as follows.

• Deliveries are expected to be +12% higher in 2025. The Outlook expects new bizjet deliveries to be up +12% Y/Y in 2025. We note our current forecast for BBD conservatively reflects +3% Y/Y unit growth in 2025, reflecting potential upside to our 2025 production estimate.

• Large long-range continue to dominate. Key was that the Outlook expects large, long-range aircraft classes to account for two- thirds of all new biz jet expenditures in the next five years. In addition, 82% of those surveyed consider "Performance" among their top three most important criteria when purchasing their next aircraft. This is welcome news for Bombardier's Global series, which boasts industry-leading range and speed while also being less cyclically exposed than other subclasses, in our view. We see the Global series as important to our very positive long-term thesis in Bombardier, and view updates from Honeywell's outlook as supporting our long-term estimates surrounding revenue growth and margin improvement, which when combined translate to low-teen FCF CAGR out to 2030.

• Stable growth expected off elevated 2025 levels. Important from the report is that stable demand is expected to continue off elevated 2025 levels over the next decade from new aircraft and the proliferation of new fleet operating models. Honeywell anticipates increased flight activity and utilization levels in 2025, thanks in part to reduced barriers and the emergence of shared access models (memberships/fractional ownership) for business aviation. We view this as a key positive for BBD as we believe a solid demand backdrop will support Global 8000 sales, with the aircraft expected to enter into service next year. Moreover, increased flight activity and utilization should support services growth in our view as Bombardier continues to expand service locations and offerings to capture share.

• Pre-owned jet demand normalizing off record lows. While the market for pre-owned aircraft is cooling after record-low inventory levels in 2021 and 2022, we were encouraged by commentary that used aircraft values remain strong relative to the previous decade. Moreover, we note that inventory for young, large cabin jets remains low and see commentary that operators plan to rely on pre-owned aircraft purchases to expand their fleets slightly more than in prior years as a favourable demand tailwind for both new jet sales and CPO at Bombardier. We see CPO as a potential $1B revenue opportunity by 2030.

  What happened?

  Honeywell provides 33rd annual Global Business Aviation Outlook forecast. Honeywell unveiled its 33rd annual Global Business Aviation Outlook forecast for up to 8,500 new biz jet deliveries worth $280B from 2024-2033 (an increase in value from last year's forecast) with a 12% unit increase in 2025 over 2024.

  Other highlights from Honeywell's annual outlook include:

• New business jet deliveries in 2025 are expected to be 12% higher than in 2024. Expenditures are expected to be 11% higher.

• Five-year purchase plans for new business jets are comparable with last year's survey and equivalent to 18% of the current fleet. Fleet additions are consistent with results from a year ago at 3% of the fleet, which is in line with historical industry performance.

• More than 90% of those surveyed expect to fly more or about the same in 2025 than in 2024.

• Large jets are expected to account for about two-thirds of all expenditures of new business jets in the next five years, consistent with last year's results.

  • 82% of respondents consider "Performance" among their top three most important criteria when purchasing their next aircraft. "Cost" was second at 60%.