Bombardier, Inc. Gets a Massive Boost From Delta Airlines Inc.

Despite posting a first-quarter loss, Bombardier, Inc. (TSX:BBD.B) has reason to celebrate as Delta Air Lines Inc. (NYSE:DAL) announced the largest order of the CSeries yet.

| More on:
The Motley Fool

Bombardier, Inc. (TSX:BBD.B) and investors of the company finally let out a huge sigh of relief this week.

The embattled manufacturer of planes and trains reported first-quarter results this week, and while nobody was really expecting the company to post a profit, the company did announce possibly the best news the company could have ever expected: a massive order for the company’s new CSeries jet.

Delta to the rescue

Delta Air Lines Inc. (NYSE:DAL) announced this week a firm order for 75 of the new CS100 aircraft from Bombardier with options for an additional 50 planes. Altogether, this represents the largest single deal for the company’s new CSeries yet. Delta, in announcing the deal, praised the new planes, touting the interior and potential 20% increase in fuel efficiency the planes have over competitors.

Better still is a clause in the order that would allow Delta to convert the order some of the smaller CS100 models into the larger (and more expensive) CS300 variant at a later date.

The estimated price of the deal, given the list prices for the planes, could be worth nearly $6 billion, or about $1 billion more than the market cap of Bombardier. Industry pundits will note, however, that a discounted price for Delta was likely placed into the order, so the total amount will likely be less.

Why this is significant to Bombardier

Besides the obvious magnitude of the order, the order itself is a significant milestone for Bombardier. The company had always hoped for a North American carrier to be a flagship launch partner that would not only promote the plane to other airlines, but serve as a vote of confidence in both Bombardier and the CSeries. It looks like Bombardier found both in Delta.

Over the past two years the CSeries has struggled to garner the 300 orders it wanted to obtain by launch time. Because Bombardier has been plagued with delays and cost overruns, many airlines took a wait-and-see approach. This Delta deal may finally be the impetus for other airlines to jump on board.

The other factor to consider is the price of jet fuel. One of the main advantages of the CSeries is the fuel efficiency of the plane, which is estimated to better than what the competition offers by up to 20%.

While the CSeries was being developed, this was a major concern with airlines, but that eroded somewhat as fuel prices plummeted over the past few years. With prices slowly creeping back up, the CSeries’s primary benefit will start to appeal to other airliners again.

The bottom line for Bombardier and investors

Including this order and Air Canada’s prior letter of intent, Bombardier now has more than the 300 orders the company wanted. While this order does spell a significant improvement for Bombardier, the stock remains a very risky investment as the company is still in the red, having posted a US$161 million, or $0.07 per share, loss for the quarter on revenues of US$3.14 billion.

That being said, current investors who purchased the stock at a much higher price and have an appetite for risk may want to seek an additional investment in the company. Delta’s deal alone is a multi-billion dollar deal, but it could be several years before the results of that deal and others finally lead to increased revenues for the company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

More on Investing

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

chart reflected in eyeglass lenses
Investing

How Should a Beginner Invest in Stocks? Start With This Index Fund

This Vanguard index fund is the perfect way to start a Canadian investment portfolio.

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »