Bombardier Inc. is making its first notable acquisition in nearly two decades, announcing plans to buy an aircraft wing manufacturing operation from U.S. supplier Triumph Group Inc. in a bid to boost its private jet business.
The Canadian plane and train maker said Thursday it will take over the manufacturing operations and assets of Triumph’s wing making unit related to Bombardier’s new Global 7500 private jet. That includes Triumph’s Red Oak facility in Texas, where 400 unionized workers assemble wings for the large-cabin plane.
The deal means Bombardier brings the wing work on its key luxury aircraft program in-house instead of outsourcing it. Terms of the deal were not disclosed, but Bombardier said it is paying a nominal fee and will assume the continuing working capital investments needed as the Texas plant increases production to supply the Global 7500 program. The deal is expected to close in the first quarter of this year.
Bombardier officials confirm Triumph is the company’s first noteworthy acquisition of revenue-generating assets since the purchase of train maker Adtranz from DaimlerChrysler in 2001. It shows that chief executive Alain Bellemare will make opportunistic deals that reinforce Bombardier’s main profit and sales drivers, even as the company has largely been shedding assets since he took the helm in 2015. The CEO is executing a five-year turnaround plan aimed at building a business with earnings before interest, taxes, depreciation and amortization of US$2.25-billion on US$20-billion in sales by 2020.
Private aircraft, and the US$73-million Global 7500 jet in particular, is key to that effort. The plane is the biggest, fastest and most expensive business jet Bombardier has ever built and Mr. Bellemare is counting on it to generate a minimum of US$2.5-billion in annual sales over the next two years. Deliveries started late in 2018. It is sold out to 2021.
“This acquisition de-risks the production ramp-up of the company’s largest and most important growth driver in the coming years,” BMO Nesbitt Burns analyst Fadi Chamoun said in a note. Bombardier is expected to build 15 to 20 Global 7500 planes this year and double that number next year.
Shares in Bombardier dipped 4 per cent to $1.93 in afternoon trading on the Toronto Stock Exchange. Triumph stock soared 26 per cent from its previous close to US$16.72 in New York.
Bombardier said taking over the wing program for the Global 7500 will lift the 2019 revenue estimates for its aerostructures unit to between US$2.25-billion and US$2.5-billion, up from a previous estimate of US$2-billion. Guidance for consolidated 2019 EBIT and free cash flow remains unchanged as do targets for 2020. That’s key to maintaining investor confidence, which has been badly shaken lately.
Bombardier has lost roughly half its market capitalization over the past six months as the company got swept up in broader market anxiety. The decline accelerated when the company unexpectedly cut its cash flow forecast during its Nov. 8 earnings report, a roughly US$600-million miss the manufacturer blames on delays in train deliveries and expects to start making up in 2019.
Those train problems continue to plague the company. On Thursday, Reuters reported that New York City Transit will stop taking new train car deliveries from Bombardier until the company fixes existing cars. A Bombardier spokesman said the company is working on a technical solution that should allow the trains to return to service “shortly." Earlier this week, Reuters said Swiss Federal Railways had also stopped accepting new train cars from the manufacturer until it fixes the dozen trains already in service.
Bombardier has highlighted five major rail contracts on which it is experiencing delivery problems, including the New York City and Swiss commitments. Cowen analyst Cai von Rumohr said the most troublesome may actually be a deal to supply London’s Crossrail system, where Bombardier deliveries are being pushed out by an estimated eight months because of infrastructure and signalling integration delays from another supplier.
“With the controversial project running well over budget, it’s unclear when Bombardier will be paid,” Mr. von Rumohr said. “It may face the dilemma of having to continue to build trains on its nickel or lay off workers, boosting costs."