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Bombardier sees business market taking off

June 28, 2011, Montreal - World leaders, billionaires, actors, sheiks, Fortune 500 companies, smaller stellar firms and assorted HNWIs - high-net-worth individuals. That's the fast - and sometimes fat-cat - crowd that Steve Ridolfi runs with. But it's not all champagne at 40,000 feet in sumptuous jets for the president of Bombardier Aerospace's business aircraft division. The Montreal Gazette reports.


June 28, 2011
By The Montreal Gazette

It's a tough market out there, one that will get tougher as Brazilian competitor Empresa Brasileira de Aeronautica SA (Embraer) is about to attack with gusto and other manufacturers rev up their own lines.

Ridolfi conceded in an interview that the recession's effects linger, making the recovery "a little rocky. I wouldn't say it's a smooth exit, that's for sure."

The good news is that most of the 25 or 26 "white tails" – unsold planes – after the business aircraft segment more or less collapsed post-2008 have been sold.

The bad news is that prices for some smaller-end used jets are still dropping, softening prices for the entire industry, new and used.

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But Ridolfi takes comfort in two factors: the top end of the market – Bombardier's Globals 5000, 6000, 7000 and 8000 – was not as hammered as was the mid-to lower-end Challenger and Learjet divisions to begin with, and is gaining more traction fast; and he expects Bombardier's investments in product development in the last three years, even as the world economic order seemed to come apart at the seams, will pay handsome dividends as the recovery takes hold.

Bombardier business aircraft underscored that by doing well again this year in Paris after stealing the show last year at Farnborough, though that wasn't hard as sales of Bombardier's CSeries came up snake-eyes last year. For $1 billion U.S. at list price (much less in real prices), it sold 16 Global 7000 and 8000s, its biggest and most expensive models that Bombardier announced only last October, and that are due out in 2016 and 2017 respectively.

"I will say this," Ridolfi added. "We had a phenomenal second half last year and first quarter."

It ain't bragging if you can do it. Industry insiders were astonished when Bombardier recorded sales of more than 70 business jets in each of three consecutive quarters.

Ridolfi conceded that a huge order (potentially for 120 planes) from first-time customer NetJets, a fractional ownership operator owned by billionaire Warren Buffett, skewed the results.

But he noted that even without that, "I feel good, we had a really strong three quarters. I won't say we're out of the woods, but I do see things getting stronger."

Cameron Doerksen, a Montreal analyst with National Bank Financial, agreed.

In a report this week, he told clients that "the Global 7000 and 8000 . launched last fall . have received significant customer interest and orders . Bombardier recently raised the production rate on its current Global models and we understand that the company is considering further ramping production rates next year. In discussions with Bombardier management in Paris, it was clear that demand and pricing for the Global family were both strengthening."

Learjet sales have "stabilized" after falling off a cliff and Challengers did not fare much better at the nadir, but Ridolfi said that "we expect the large-cabin segment to stay red-hot."

And despite recurring rumours that Bombardier may sell Learjet to Chinese interests avid to ramp up the country's domestic business jet sector – along with its commercial aerospace industry and rail sector, and most other things – Ridolfi and his boss, Bombardier Aerospace president Guy Hachey, both swatted away all suggestions that the Wichita, Ks., division was for sale in conversations with The Gazette.

As development of its future Learjet 85 gives way to production for its 2013 delivery date, Ridolfi said, "we're going to be much bigger in two years' time than we are today in terms of workforce, output and revenues."

He wouldn't specify how many employees Bombardier may add at Learjet, which currently employs about 2,000 people, but Bombardier is pinning a lot of hopes on its Lear 85.

"The 85 is the largest and most capable Learjet ever built and it will change the face of Learjet just on that basis."

Ridolfi said he felt "particularly proud that in 2010, we had a market share of close to 60 per cent (for all categories) in terms of order intake, and 70 per cent so far this year" – another hopeful sign for the future.

That's not likely to continue as Bombardier's five business-jet competitors – Embraer, Cessna Aircraft Co., Gulfstream Aerospace Corp., Dassault Aviation and Hawker Beechcraft – also recover and begin ramping up production of their own models – particularly Gulfstream's much-furtheralong G650, against which the 7000 and 8000 will battle. The G650 has more than 200 firm orders and will enter service next year, four or five years before Bombardier's, a huge leg up in that segment.

While some grumble that the insulation of the rarefied top echelons of the private jet market is yet another indication of the growing disparity in income, Ridolfi says that Nigerian oil wealth or Russian oligarchs striking it rich in minerals, for instance, "create a lot of wealth for a lot of people."

Doerksen concluded that "in our view, the rebound in the high-end of the business jet market will be key driver for margin and earnings improvement for Bombardier Aerospace in the coming years."