Bombardier unveils updated Challenger 350 corporate jet

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Bombardier Inc. is bringing to market an updated version of its popular Challenger 350 corporate jet as private air travel soars during the COVID-19 pandemic, betting it can capitalize on surging industry demand after a decade of stagnation. It is also plotting its next move.

The company unveiled the revamped aircraft, called the Challenger 3500, at an event with stakeholders at its Dorval, Que. Challenger facility on Tuesday. It is the first major upgrade for the mid-sized jet since it was launched in 2014.

“It signals to the market that [Bombardier is] very much alive and well,” industry consultant Brian Foley said. “Even though they’re busy paying down debt, they’re still finding some research and development funds for new products.”

Bombardier chief executive Éric Martel and chief financial officer Bart Demosky are trying to stage a recovery for the company that hinges on a reworked capital structure and a slimmed-down business model. Bombardier has sold its rail unit, its commercial aircraft assets and its plane parts-making division and is now focused solely on selling and servicing private jets.

The Challenger 350 is Bombardier’s highest-volume business jet and also one of the sector’s top sellers, according to industry data. It sits eight passengers and two pilots, and has a list price of US$26.7-million. The new aircraft will be offered at the same price with deliveries starting next year, Bombardier said.

Despite its popularity, the 350 has received only limited upgrades over the years amid Bombardier’s chronic financial woes and it was due for a major overhaul to keep customers interested, analysts have said. A refreshed plane should allow Bombardier to leverage the Challenger’s strong reputation and regain lost market share in the coming years without jeopardizing its balance sheet, said Desjardins analyst Benoit Poirier.

In addition to enhanced cabin features, the 3500 will be equipped with an autothrottle system that allows for computer-controlled engine thrust – which reduces the workload for pilots. Its Honeywell engines will remain the same as on the current model.

Bombardier declined to provide a cost for the overhaul, but said the spending is within its current capital expenses plan of about $200-million over the next several years. As Bombardier is modernizing an existing aircraft and not starting a clean-sheet design from scratch, which can cost billions of dollars, its spending on the revamped Challenger 350 is limited to “tens of millions,” Mr. Martel said.

The company is plotting its next move beyond the 3500 as well, Mr. Martel said in an interview. It could be another refresh or a complete clean-sheet redesign, he said.

The most likely candidate for an overhaul is the Challenger 650. “My guess is that the 650 replacement is bright on their radar,” said industry consultant Rollie Vincent, a former Bombardier executive. “I think this will require capital that they do not want to access right now.”

Mr. Martel said Bombardier intends to respect its US$200-million commitment on annual capital spending between now and 2025. “But that doesn’t mean that a small portion of that envelop can’t be used to start to make those studies and look into different alternatives,” he said.

Bombardier has not made a decision on that move and there is no timeline for such a decision, he said.

News agency Reuters first reported the company’s Challenger upgrade plans, which was also confirmed Monday by The Globe and Mail.

When Bombardier chose to bet its future on business jets early last year, many investors questioned the decision. In part, that’s because with the exception of a short-lived spike in 2019, demand for corporate jets has been generally stagnant for about decade. In all, seven manufacturers with 35 to 40 models between them have chased a limited pool of sales that never topped 750 planes from 2010 to 2020, according to Cowen Research.

But the pandemic has changed the picture. Safety concerns about flying commercially has pushed many wealthier individuals and business people to seek out private charter flights, which are now running 10 per cent above 2019 levels, Cowen analyst Cai von Rumohr said in a research note earlier this month. Meanwhile, the market for preowned jets has also tightened, producing a “buyer’s frenzy” for quality aircraft, he said.

“We see an upswing at least through 2023 – longer if COVID persists,” Mr. von Rumohr said. Demand will be buoyed by growth in the number of high-net-worth individuals, which in itself is tied to a strong U.S. stock market, as well as the sheer number of first-time customers choosing corporate jet travel, the analyst said.

The latest half-year updates by makers of private planes show book-to-bill ratios climbing above two, meaning that for every plane that was built and delivered through the first six months of 2021, manufacturers booked two new sales.

“This is just a first leg up in longer-term, steadily increasing jet prices as more buyers chase a limited airplane supply, all while being fanned by systemic inflation throughout the economy and supply chain,” Mr. Foley said in a separate note. “The industry is embarking on its first opportunity for firming up prices in well over a decade, pointing towards a long overdue clear runway towards improved margins and prosperity.”

Bombardier, controlled by its founding Bombardier-Beaudoin family, had about US$10-billion in total debt outstanding at the end of 2020. The company currently makes Learjet, Challenger and Global jet models at prices ranging from US$9.9-million to US$75-million. Bombardier will stop making Learjet planes this year to focus on the other two aircraft families, which are more lucrative.

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