Goldman conference blurbPresenters: We hosted Bart Demosky, CFO, at our Industrials and Materials Conference today.
Bottom line: Bombardier stated private jet demand remains strong. The company performs scenario planning around potential tariffs, but for multiple reasons believes a final outcome there is relatively unlikely to impact its financials. Pricing remains strong. Growth potential is substantial in the defense aircraft effort, which is higher margin than existing enterprise levels. The company sees a clear path to its 2025 financial objectives given its backlog, aircraft mix, strong growth in aftermarket and defense, price, cost, and improved working capital.
Tariffs and taxes: Management discussed the nuances of tariff headlines that have included its country of domicile. It scenario plans around the possibility of impact but notes that aerospace has been excluded from tariffs before because such a high percentage of an airplane’s components are made in the US. Changes in tax policy could increase private jet demand.
Honeywell agreement: Management provided a summary of the history of its relationship with Honeywell and the recent agreement it announced with the company. BBD did not discuss specific financials, but we interpret the Honeywell disclosure to mean there is a cash payment to BBD. The agreement creates a path to work more collaboratively on new technology in avionics, engines, and APUs; but BBD was clear to state that does not mean a clean sheet aircraft and that it is always upgrading components and technologies in its existing aircraft product portfolio.
Supply and demand: Bombardier expects to deliver 150-155 planes in 2024 and does not expect new unit growth in 2025. Demand is solid, and future unit growth is possible; but for now the company wants to keep supply/demand tight, focus on price and margins in the new jet business, balance working capital, and then focus on growing the higher margin aftermarket and defense businesses.
Defense: Two years ago, the company announced it was expecting to grow its defense business from ~$300mn to $1bn by the end of the decade, but given the success of this effort, it now expects that it will reach $1.5bn by the end of the decade. Management sees the defense business as a $30-40bn market over a 10-year period and described limited competition given overall improvements in technology, competitors revamping product lineups, and aircraft range and efficiency improvements at BBD. The company has opportunity to sell jets but also sees opportunity to expand into maintenance given the extensive use of these jets creating more frequent maintenance relative to customers in the private jet market.
Free cash flow: The company outlines a clear path to its 2025 free cash flow objective, with EBITDA growth from higher aftermarket and defense revenue, margin expansion, and then the lack of the working capital headwind it has in 2024 which was driven by a new unit ramp-up that does not repeat next year. The company also expects to continue growing free cash flow beyond 2025