Bombardier's inventory of unsold "white tails" surged from three to 19 aircraft in the fourth quarter of fiscal year 2008-9 as the market for business jet sales declined faster than the company's ability to respond.
Nineteen new aircraft and 29 pre-owned aircraft valued at $448 million remained unsold for the quarter ended 31 January. The sudden spike adds further pressure upon Bombardier's efforts to recover from a downward spiralling business jet market.
Guy Hachey, president and chief operating officer of Bombardier Aerospace, told analysts on 3 April that the key drivers of business jet sales - corporate profits and aircraft utilisation - have declined.
For several of the 19 "white tail" aircraft, customers suddenly were unable to afford them upon delivery despite already placing significant deposits.
"People can't afford to take them at the last minute. This is the kind of market we're in," says Pierre Beaudoin, Bombardier president and chief executive.
At the same time, about 60-70% of the world's business jet fleet is on the market, dramatically affecting prices for new and used aircraft.
Bombardier was forced to take a write-down on the 29 pre-owned aircraft. The company acquired the aircraft at market prices as trade-ins for new sales, but was unable to sell them before their values plunged amid a sudden glut of unsold business jets on the market.
"The market has been moving faster than the margin we have, so we did have to make an adjustment from one quarter to another," Hachey says.
In response, Bombardier has conducted a "deep-dive" analysis of its current backlog, seeking to move up customers who want jets earlier. Their purchases could replace orders by earlier customers who can no longer afford them.
"We are looking deep into our backlog and making those trade-offs," Hanchey says. But he acknowledges the outlook for the business jet market is far from certain.
"To tell you I have clear visibility several months ahead, I would be disingenuous," Hanchey says, who hopes the market "will pick up, but, if the market requires, we will take decisive action".
Source: Flight International
