Canadian luxury jet maker Bombardier Inc. BBD-B-T says it is closely watching the situation in Ukraine and will cancel aircraft deals with Russian customers as necessary to comply with sanctions targeting individuals and companies.
Customers in Russia and former Soviet bloc countries traditionally account for about 6 per cent of Bombardier’s overall business for private jets, chief executive Éric Martel said Thursday. Company-wide revenue in 2021 was US$6.1-billion.
The Montreal-based industrial giant is one of the main members of the Canada Eurasia Russia Business Association, a non-profit group of some 140 companies and individuals promoting bilateral trade and investment between Canada and the Eurasia region, which includes Russia. The association in turn helped spawn the Russia-Canada Business Council.
“We are very concerned with what’s happening for the population in Ukraine,” Mr. Martel told reporters after a financial update. “This is a very sad situation.”
Bombardier is closely monitoring the Russian invasion, which has triggered sanctions from Western governments against Russian individuals and companies, Mr. Martel said. He said the company currently has no customers with jet orders subject to such sanctions but won’t hesitate to terminate deals if necessary.
The Canadian government announced Thursday that it would impose further sanctions and would cease issuing export permits for goods travelling from Canada to Russia. It wasn’t immediately clear how that would affect Bombardier.
Bombardier does not have any operations or major suppliers in Russia or Ukraine, so its production is not at risk. The company is riding an unforeseen surge in minimal-contact travel during the pandemic, which has lured business travellers out of commercial airliners and onto private jets.
But with about six of every 10 sales coming from high-net-worth individuals and private companies, much of Bombardier’s business hinges on what happens to the wealth of billionaires and corporate profits. The company has a solid order book at the moment, but if war ushers in a prolonged period of tanking equity markets and depressed asset valuations, it will not escape the turmoil.
Bombardier almost crashed under the weight of unmanageable debt, and Mr. Martel is now trying to stage a recovery that hinges on a slimmed-down business model focused solely on selling and servicing private jets. The company sold its train unit to France’s Alstom SA last year and also divested its commercial aircraft manufacturing business.
Bombardier provided an update on its turnaround Thursday, saying it remains on track to deliver more than US$500-million in free cash flow and adjusted earnings before interest, taxes, depreciation and amortization of US$1.5-billion by 2025. A greater profit contribution from the Global 7500 jet and cost savings will drive the earnings gain, the company said.
In a new disclosure, Bombardier said it was building “a recurring, incremental capital allocation envelope” of as much as US$600-million a year that it could use for strategic moves or to pay down debt. The money, which is in addition to the US$500-million in free cash flow it is forecasting, could help fund new aircraft programs.
Competitors such as U.S.-based Gulfstream and France’s Dassault Aviation have both unveiled plans for new aircraft in recent weeks, increasing pressure on Bombardier to ramp up its own development spending. While its product lineup is fairly new, the company will probably need to invest in a clean-sheet design to replace its Challenger 650 model, National Bank analyst Cameron Doerksen said.
Bombardier once had ambitious plans for Russia. It was in talks with state giant Rostec to set up assembly operations in the country for Q400 turboprop planes but suspended the project in 2014 when Western sanctions took hold in response to Russia’s invasion and annexation of the Crimean Peninsula.
Its aforementioned train unit sold rail equipment in Russia and other former Soviet republics for years from an office in Stockholm. Swedish police launched an investigation into allegations of bribery at Bombardier related to a contract in Azerbaijan. The company has consistently said there was no evidence of wrongdoing in that case.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.
Nicolas Van Praet