Estimated reading time 5 minutes, 6 seconds.
Bombardier announced strong financial results for its second quarter ended June 30, 2022. During the period, its total revenues increased 2% year-over-year, from US$1.52 billion to 1.55 billion US dollars. This was as expected and reflected a similar level of aircraft deliveries. Bombardier delivered 28 aircraft in Q2/22, compared to 29 in Q2/21. The most recent quarter’s count included 16 Globals and 12 Challengers.
Services revenue in the quarter reached US$359 million, an impressive 22% increase from US$295 in Q2/21. They accounted for 23% of Bombardier’s total revenues in the last quarter, compared to 19% the previous year. This is important because the service business is a key part of the company’s growth strategy.
Year-over-year, the company’s gross profit in the quarter increased 25% from US$215 million to US$269 million, and its operating profit (defined as profit before interest and taxes) increased by 180%, from US$36 million to US$101 million. .
This improvement in earnings performance enabled free cash flow of US$341 million in the quarter, an improvement of US$250 million from Q2/21. Following this strong performance, the company raised its full-year 2022 free cash flow guidance from “above $50 million” to “above $515 million.”
The company’s balance sheet was strengthened in the quarter as debt of US$373 million was reduced with cash. Despite this, its cash and cash equivalents amounted to approximately US$1.4 billion as of June 30, 2022.
Bombardier’s outlook remains very encouraging. Despite the conflict in Eastern Europe and global economic concerns, business aviation trends remain positive. Business jet use in North America and Europe has rebounded impressively from levels seen two years ago and is expected to continue to grow. The strong demand for business jets is supported by the fact that the number of aircraft available on the secondary market remains low. As a percentage of the active fleet worldwide, the number of used aircraft for sale is estimated at less than four percent. Typical uptime is around 10%.
The high level of demand is reflected in the latest figures from Bombardier’s order book. Thanks to its impressive orders-to-bills ratio of 1.8X in Q2/22, the order backlog stood at US$14.7 billion as of June 30, 2022. This was up from US$13.5 billion. US dollars as of March 31, 2022; US$12.2 billion as of December 31, 2021; US$11.2 billion as of September 30, 2021; and 37% above its level of $10.7 billion a year earlier.
This large backlog represents approximately two years of production of the Global and Challenger models. Additionally, it is comprised of a healthy mix of traditional customers that include businesses, families, fleet operators and governments. One of the benefits of such a large backlog is that it gives Bombardier confidence in its production schedule. Management is aware of the time it takes to get an aircraft to its buyer from the time it is ordered. This influences the production rate of a model, as well as its selling price. The company has chosen to be conservative in its production rates, but not to the point of discouraging orders for lack of availability. It also remains vigilant regarding supply chain issues and currently does not anticipate any issues that could interfere with its near-term production schedule.
It should also be noted that new order deposits and customer deposits largely finance working capital requirements for aircraft production. This further reduces stress on Bombardier’s balance sheet.
While Bombardier’s financial performance in Q3/22 will likely be influenced more by continued operating efficiency than revenue growth, the fourth quarter should deliver an impressive performance. With a record backlog, robust demand for its products, increased cash flow generation and the continued strengthening of its balance sheet, Bombardier’s financial turnaround remains an exciting situation to watch.