After suffering 61 business jet cancellations during its fiscal first quarter ending 30 April Bombardier believes the dramatic drop of customers abandoning orders is slowing.
The combined total business jet cancellations for Bombardier’s fiscal first and fourth quarters reached roughly 105. But Bombardier Aerospace president and chief operating officer Guy Hachey says the rate of cancellations in May slowed down slightly compared with the rate of customers cancelling orders during the first quarter.
Acknowledging a non-stellar performance of Bombardier’s Aerospace business during the quarter as business jet cancellations outpaced new orders, company chief executive officer Pierre Beaudoin believes “the business jet inventory is starting to stabilize, and more credit is available to customer”.
Yet despite those faint signs of optimism Bombardier’s inventory of “white tail” business jets climbed to 25 at the end of the first quarter compared with 19 at the end of its fiscal fourth quarter.
Neither chief executive Beaudoin nor aerospace head Hachey are pleased with the number of white tails on hand. But Hachey explains during the least six-to-seven weeks Bombardier has “seen a bit more interest in the market. Not that it’s been basically buoyant but compared to what we’ve seen in January, February and March, April and May were much more active in terms of customer interest in the marketplace.”.
Bombardier does “in some cases have names against those white tails”, but has not reached a final agreement with those customers.
While Bombardier is obviously trying to move the aircraft, Hachey says the company is employing some discipline in their placement. “The direction I’ve given to the group is we have to be mindful of what we’re doing to prices and what we do to the marketplace,” he explains.
Explaining that discipline to analysts Hachey says that is likely “one reason some of you feel we haven’t moved as much”. But even as he touts that Bombardier has moved quite a few white tail aircraft whose numbers have fluctuated during the last two quarters, he stresses “we’re not giving them away”.
Hachey believes Bombardier could suffer a “little more in inventory and cash absorption for the time being”.
But the ballooning number of white tails does cause concern as those aircraft tie up “large amounts of capital and pose the risk of being unloaded at steep discounts in the future”, says Raymond James analyst Steve Hansen. He estimates the value of the 25 uncommitted aircraft and the 35 pre-owned planes in Bombardier’s portfolio at $560 million compared with $448 million at the end of the fourth quarter for 19 white tails and 25 pre-owned aircraft on hand at Bombardier.
Despite the overall 61 aircraft order cancellations for the quarter, the company did log 20 new business aircraft orders for the same time period. But Hachey notes “pricing is still challenging”, as used aircraft are still available in the marketplace.
Along with his recognition of the obvious challenges in the business jet market, in the long-term Hachey says Bombardier remains above its targeted backlog rate. Its backlog for the Learjet family is 16 months, 20 months for its Challenger aircraft and 35 months for the Global Express.
Beaudoin also points out that cancellations two-three years out do not have as much of an effect as those done in the short-term. Hachey says up until now Bombardier has been successful in “getting customers to move up in the profile”.
Source: FlightGlobal.com
