Bombardier Reorganization

Headline:  This CANNOT be good….

Situation:  Bombardier just announced a new organizational structure of four segments by splitting Aviation into three units – Business Aircraft, Commercial Aircraft, and Aerostructures and Engineering Services.

  • Aerospace President & COO Guy Hachey is “retiring” at age 59 – with the biggest product launch of his career (CSeries) underway.
  • The “A&ES” business does not yet have a business leader.
  • A detailed implementation plan “is to be developed” over the next few months to be implemented by January 1, 2015.

Our view:  Again, this cannot possibly be good.

  • The stock likely trades down tomorrow.
  • Faith in management execution was already low.

Recommendation:  Value investors should buy the dip. Further patience will be required.

  • Bombardier is not the standard bearer for delivering results. We get it.
  • Bombardier is a publicly traded family owned business and its structure prevents adult supervision from activist investors.
  • But they make very good aircraft. The CSeries will be ultimately successful.
  • We can get to a 3-5 year target price range of C$11-21 per share from today’s close of C$3.74.

Laterals:  Anybody with an aerospace investment or business interest.

►  ERJ – Embraer ►  TXT – Textron ►  UTX – United Technologies

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