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Bombardier luxury jet nearly breaks sound barrier as 2018 entry on track

Bombardier Global 7000 and Global 8000 business jets


Bombardier Inc. said its new Global 7000 luxury jet brushed the speed of sound as it confirmed testing for the new airplane remains on track for a planned entry into service in the second half of 2018.

The aircraft, which the federal government supported as part of a $372.5-million funding package for Bombardier announced Feb.7, reached a speed of Mach 0.995 in recent testing, Bombardier said in a statement Wednesday (Mach 1 is the speed of sound). It is the largest business jet to reach this high speed, the company said.

Bombardier is counting on the Global 7000, the biggest luxury aircraft it has ever built, to help fuel revenue and profit in the years ahead as Chief Executive Alain Bellemare pushes forward with a turnaround effort to reverse three straight annual losses. The company has said it expects to ship 135 business aircraft this year of all sizes, down from the 163 jets delivered in 2016.

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Larger cabin corporate aircraft like the Global 7000 have traditionally been the company's most profitable planes. But a down-cycle in demand for private jets industry-wide has made things more difficult for Bombardier in its bid to recover. Mr. Bellemare said last month that demand has likely bottomed out and should improve going forward.

Much depends on what happens in the United States. Healthy corporate profits are typically positive for business jet demand and there has been a strong historical correlation between U.S. corporate profits and business jet deliveries in particular.

"Business jet demand has not recovered with corporate profits this time, however, which are 22 per cent above the 2006 peak," JP Morgan analyst Seth Seifman said in his monthly analysis of the market published March 23. He attributes the disconnect to several factors, including the stigma attached to business jets during the last recession and the halting nature of the economic recovery.

Backlogs at the world's five main corporate jet manufacturers fell 15 per cent in 2016 to $32-billion, the lowest level in a decade, Mr. Seifman estimates. However, he noted Bombardier held its own on profitability, growing its earnings before interest and taxes on business jets 20 per cent to $370-million (U.S.) because of cost-cutting and better used inventory management.

Brad Nolen, director of product strategy and market development at Bombardier business aircraft, expressed optimism that demand outside the United States is picking up. He noted Russia is starting to climb out of recession while a hard economic landing in China hasn't happened. Meanwhile, political stability in Latin America is improving.

"When we start to see these other key markets coming online, which seems to be happening, I think that's when we're going to start to see more growth in business aviation," Mr. Nolen said during a briefing for reporters.

Desjardins Capital Markets analyst Benoit Poirier said in a research note he remained concerned about future production rates for Bombardier's business aircraft, "given the uncertain market and the competitive environment." He noted the company posted a book-to-bill ratio of 0.4 for luxury jets in its latest quarter, meaning it received orders for only 4 new planes for every 10 it shipped. A ratio below 1 implies weaker demand.

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Bombardier said two Global 7000 test aircraft are currently operating. Both are showing a high degree of maturity in testing and are being dispatched twice a day in many cases, the company said. The plane maker still expects to delivery its first Global 7000 plane to a customer sometime in the second half of next year.

Ottawa's support for Bombardier is structured as a royalty scheme, with the government receiving payments as Bombardier delivers planes. Two thirds of the money pledged to the company will be earmarked for the Global 7000 program.

Video: This is the Bombardier aircraft that Ottawa just backed with an interest-free loan
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