Why Did Bombardier, Inc. Jump 15% on Friday?

Bombardier, Inc. (TSX:BBD.B) got great news related to its trade disputes, but it’s still not a great buy.

| More on:

Shares of Bombardier, Inc. (TSX:BBD.B) jumped by over 15% in the closing hour of trading on Friday due to news that Boeing Co (NYSE:BA) had lost its trade case against Bombardier.

Boeing argued to the U.S. International Trade Commission that Bombardier was using illegal trade strategies that were harmful to Boeing’s business. Boeing argued that when Bombardier sold planes to Delta Air Lines Inc. (NYSE:DAL), it had priced them so low that no one could have competed.

The U.S. Department of Commerce had levied a 300% tariff on Bombardier for every new plane that Bombardier shipped. That would have made it impossible for the company to ship the planes, because it would lose so much money per plane. But the U.S. International Trade Commission has disagreed with the Department of Commerce, thus getting rid of the 300% tariff on all CSeries planes that Bombardier sells.

Naturally, this is a big win for the company and should leave investors incredibly excited. But even if it hadn’t happened, Bombardier had found a way around the tariff. Airbus SE agreed to buy 50.1% of the CSeries project and move production down to Airbus’s Alabama factory. By producing the planes in the United States, Bombardier would have gotten around the tariff anyway. But now it’ll be easier to produce planes in Canada and the United States.

The question investors now have to ask is whether this makes the company a buy or not. I continue to have concerns, many of which I’ve discussed in the past.

Bombardier has suffered from delays for some time now. But the belief was always that the delays were in the aerospace division. The CSeries took longer than expected and went far over budget, but other divisions — mainly the rail division — were still doing fine. At least that’s what we all thought.

Unfortunately, that’s not true. According to a contract with the Toronto Transit Commission, Bombardier was supposed to deliver 204 new streetcars by 2019, with 148 due by the beginning of this year. So far, Bombardier has only delivered 59. Bombardier argues it can still get the rest delivered, but the Toronto Transmission Commission isn’t confident.

Then there’s the deal with Metrolinx. Originally, the deal called for 182 LRT vehicles. However, because of consistent delays, Metrolinx was forced to go elsewhere. After many negotiations, there’s a new contraction that calls for only 76 vehicles, with the rest coming from one of Bombardier’s competitors. This reduces the overall contract value from $770 million to $392 million.

If these delays don’t get under control, the good news related to Bombardier’s CSeries will be overshadowed by the horrible news related to its rail division.

The problem, in my opinion, is that there is no incentive to fix anything. The founding family of Bombardier owns a majority of all voting power through a dual-class share structure. So long as the founding family has that power, there’s no way for the average investor like you and me to force change.

Ultimately, my belief is simple: Bombardier is an intriguing company; there’s no denying that. But it remains incredibly dysfunctional. And I would rather put money into other stocks that have the shareholders’ interests at heart.

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 writer Jacob Donnelly does not own shares of any stock mentioned in this article.

More on Investing

think thought consider
Tech Stocks

Is CGI Stock a Buy Even With No Dividend Yield?

CGI stock may not have a dividend to speak of. But does that necessarily mean you should ignore this top…

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

Why Now Is the Time to Invest in Canadian AI Stocks

Are you looking for one of the most solid Canadian AI stocks out there? This one is probably your best…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Read more »

stock research, analyze data
Bank Stocks

Canadian Bank Stocks: Buy, Sell, or Hold?

There are opportunities and risks on the horizon for the Canadian banks.

Read more »

Young Boy with Jet Pack Dreams of Flying
Stock Market

Is Air Canada Stock a Good Buy After Its Q3 Results

Down almost 60% from all-time highs, Air Canada is an undervalued TSX stock that remains an enticing investment in November…

Read more »

cloud computing
Investing

Where to Invest $10,000 in November

Given their solid underlying businesses and healthy growth prospects, I expect these two defensive stocks to outperform uncertain outlook.

Read more »

coins jump into piggy bank
Retirement

Here’s the Average RRSP Balance at Age 44 for Canadians

Holding stocks like Alimentation Couche-Tard (TSX:ATD) in an RRSP is a good way to build your wealth.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »