07 May 2015, C. Leeham Co: Last week we looked at Airbus first quarter result and compared its commercial aircraft unit with Boeing’s. Now with do the same with Bombardier and Embraer. As both have sizeable Business jet businesses we will include these in the analysis as they share many technologies and developments with the commercial aircraft.
Embraer reported their results last week and Bombardier today. Both reported quarters in the aerospace area which were a bit inferior to last years first quarter and for the same reason, the Biz jet market has gone soft.
Bombardier, who has a larger proportion of its turn-over in Biz jets, has managed this better, it has delivered more aircraft and generated slightly higher revenue and profits from the area but new orders has been slower.
Embraer does separate its business segments for revenue but not for profits. It reports that the lower revenue and profit for the quarter was mainly because the Biz jet area delivered fewer aircraft at less margin. Commercial aircraft deliveries were strong, with good efficiencies in the production and delivery of E-Jets.
Deliveries, revenue and sales
Bombardier delivered more commercial aircraft (13 CRJ900s, one CRJ1000 and eight Q400s) than Embraer who delivered 20 E175s in the quarter. On the Biz jet side Bombardier delivered 45 aircraft versus 12 for Embraer. Revenues for Civil aircraft and Biz jets were $673m + $1537m = $2210m for Bombardier and $662m + $167m = $829m for Embraer .
Sales were good for Embraer in the Quarter as backlog only decreased with $0.5bn from $20.9bn 4Q 2014, backlog of E-Jets stand at 454 which is around 4 years of production. Backlog at Bombardier Commercial aircraft stayed put at $12.5bn while it went down $0.6bn at Biz jets to $23.4bn. The major portion of the commercial aircraft backlogs are for CSeries with 243 aircraft. The backlog for CRJ stands at 90 aircraft which is 18 months production and for Q series at 52 aircraft which is close to two years production.
Profitability and free cash flow
The two groups have totally opposing fortunes in their respective divisions. At Bombardier the Biz jet side is earning the money with $107m earned during the Quarter whereas the commercial side is losing money with -$10m. This shows that Bombardier keep the Civil airliner revenue and production going with CRJ and Q-series to cover the divisions fixed costs but badly needs CSeries to regain profitability in the division.
At the quarterly announcement, the new CEO, Alain Bellemare, also said that certification of CSeries will be made during 2015 but that the announced first customer, Swiss, would only take the first series aircraft mid 2016. As the CSeries will be produced at a loss for first years the commercial side will stay in negative cash flow for years to come. Until the CSeries is program profitable at a development and tooling cost of around $5bn it will take decades.
Free cash flow for the quarter was down to -$745m from -$915m a year ago, the result of restructuring and a halt to the Learjet 85 program.
For Embraer it is the other way around. The commercial aircraft side is the revenue and profit generator with the Business aircraft side generating more modest results. The reason is that whereas the Biz jets for Bombardier is mainly profitable mid-sized and large Biz jets the Embraer Biz jets are mainly small and mid size which generate less revenue and profits.
Free cash flow 1Q 2015 for Embraer was -$530m compared to -$446m 1Q 2014. The company said that investments in R&D for the year will be around $300m.
Embraer might be the world’s third largest producer of civil airliners but the civil aeronautical sector is less than half as large as Bombardier’s. Embraer’s commercial aircraft sector is more successful however with deliveries of E-Jets close to 100 per year with a backlog of 450 E-Jet of both the legacy and the new E2 type. It has also streamlined the present product line with a newly refreshed E175 being the main delivery and at good margins.
Bombardier on the other hand is the world’s dominant large Biz jet producer together with Gulfstream. This is where the revenue and profits are with prices in the same league as for a regional jet. This is why the development of the top of the line Global 7000 and 8000 are almost as important to Bombardier as the CSeries, as these will continue the groups profitability together with the train division and pay the bills until CSeries can be produced at a profit.
Bombardier has raised a significant amount of cash to pay for the load the CSeries places on the group. During the last six months new shares and loans have raised the cash position from $3.8bn to $6bn. This shall now cover the period until CSeries and Global 7000/8000 can contribute to the bottom line. The new management is also dressing the Train division for co-operations with a minority stake IPO planned for end of this year.