- Bombardier holds a 38% stake in Airbus A220 and this model is becoming an increasingly viable solution for airlines around the world.
- The industry's longest business jet in the world, the 7500, is FAA-certified A class in its own right, put into service at the end of last year, expected in 2019 with around 20 deliveries. The only business jet that connects New York and Hong Kong non-stop.
- We can buy this great portfolio of Bombardier (OTCQX: BDRBF) products using Boeing's (BA) sales proceeds, but run the risk of buying Boeing with $ 295 in support.
At the beginning of this article I would like to share a paragraph of an article I wrote for SA on Bombardier in March 201
"I feel that the C-Series is clearly a class best for the future airlines. Simply rebuilding old models as their competitors do will prove far too little and far too late to create the conditions for Bombardier to ensure a growing share of new orders. "
Obviously a lot has happened since then. Then the models 737 MAX and A320 NEO were introduced by Boeing and Airbus (OTCPK: EADSY). In addition, Airbus took the lead and majority interest in Bombardier's Cseries series, now known as the A220 Family.
How did we get here, you may ask yourself? Part of the answer is that the development of the A220 by Bombardier at Boeing and Airbus detracted from long-held market shares for single-aisle aircraft. While these two giants developed new models like the 787, the 777 and the A380, they failed to develop new models in a single gear. Therefore, modified versions of the 737 and the A320, the MAX and the NEO (new engine option) were designed. , For the most part, both models have been quickly tracked because they are modifications to previously certified jets. I mean, both models have been proven safe for decades. For safety reasons, however, things are not going according to plan at Boeing, while things are better at Airbus, but not as planned.
I believe that Boeing's current problems stem from decisions taken 8 or 9 years ago. A new single-aisle design for newer and more fuel-efficient engines seemed prudent and overdue for Bombardier's business case for the Cseries, but Boeing focused on the 787 model.
Why was the Model 787 given priority? The answer is mostly due to the fact that the airlines wanted it and the model was sold quickly in advance. It is important to remember how the airlines fought in 2008 before the financial crisis. Energy prices had risen to $ 140 by the end of 2002-3, from around $ 30 a barrel to the peak of the energy cycle. This has resulted in several changes in the industry, the most important being the consolidation of many airlines to achieve greater scale, and the emergence of better engine technology.
Airlines needed larger jets at this time. It looks like the 787 is a big hit, and Boeing has been a winner for many years. My flight from London to Montreal with Air Canada with a Boeing 787 last December at regular rates was fantastic and admittedly I'm big on airline seats, you know what I mean.
Airbus, however, has not had the same success with its A380. The model has delivered all the expected results and appears to be very safe, unless the price of the aircraft is considered too high by airlines. Due to the airlines' attitude towards the A380 and the low margins at the last price, Airbus then decided to discontinue the sale at an earlier date. Therefore, after the current backlog of orders has been processed, the aircraft will be placed in the bunker until conditions are better suited.
The A380 is probably too big for airlines today, but the A380 will eventually become a viable aircraft growth in the industry? Nobody knows for sure.
Boeing 737 MAX and Airbus A320 NEO (Single Aisle Aircraft)
These two jets were created to destroy the business case of Bombardier's CSeries program. In fact, to make things even more frustrating, they managed to destroy Bombardier's CSeries business plan.
By a small miracle, Alain Bellemare, CEO, had a plan to at least rescue Airbus' new-generation CSeries jet. Perhaps Airbus knows the boundaries of the A320 NEO and acted accordingly. They are very familiar with the geared fan motor from Pratt and Whitney (UTX) and have equipped their A320 NEO with it.
Until 2011, airlines had to make decisions to either use the CSeries jet or Airbus and Boeing to provide alternative fuel-efficient options. Both decided to offer new engine solutions for old jet designs. This was an instant hit and both manufacturers received orders for hundreds of modified versions of existing jets.
While billions have been used for programs for oversized jets, both structures, which were nearly 40 years old, have been fitted with new, new wing assemblies
Well, in recent months, much truth has come out, and the aerospace industry will probably never be the same.
The FAA appears to be the least underfunded, least of all lacking in skills. Do you really know what you have certified and do you go from Boeing yourself in the right direction? Sounds crazy, but it was reported. It was reported that Boeing Trump and the FAA had asked to ground the 737 Max in the US after Transport Canada and Minister Marc Garneau had acted on Wednesday. Canada's CBC reported that Mr Garneau had investigated flight data from both crashes and found similarities therein. The data was provided by Aireon LLC, founded in 2012 by Iridium Communications Inc. and Nav Canada, a non-profit company that controls air traffic in Canada.
I think that Boeing's board has essentially created a nightmare for thousands of engineers. Airbus could see the same consequences with the A320 NEO. Nobody knows for sure.
Bombardier's CS Series business case consisted primarily of fuel efficiency through the use of Pratt and Whitney geared nozzle fans. The aircraft design including the wing structure was developed to accommodate the engine. So far, the cseries was fine, no security incidents yet.
Older designs of Boeing and Airbus have not been developed for today's engines. In my opinion, no one knows exactly how safe or uncertain they are at present, not even the FAA, although Boeing appears to be identifying the severity of the Indonesian crash. Boeing is, however, much earlier than expected just six months before the demolition of the 737 MAX. Mainly to save its reputation as a leading supplier of safer aircraft.
The 737 MAX is flawed for now, maybe forever. It appears that the larger and heavier wing and fuselage engine has been accommodated by moving forward to fit the clearance under its wings. This led to a shift to focus. The Seattle Times reported this on November 15, 2018 after the Lion Air crash in Indonesia in this way.
"Fehrm said Boeing must have added this system to the MAX because this model is less stable at a high angle of attack compared to earlier 737 variants: the MAX has larger, heavier engines, which also forward on the wing cantilevered to provide more ground clearance, which changes the center of gravity. "
Read the full article here. Interestingly, Boeing's former flight control experts questioned the safety of the 737 MAX last fall, as reported in the same article. For more information on the trade-offs for customizing the new engines, see this article. The corresponding compromises can be found in paragraphs 8 and 9 of this article.
The automatic rebalancing software was added as a result and is not necessarily an improvement over the 737 Next Generation. It's hard to say if training with more sensors and sensors alone is safe. Maybe so, but right now nobody can rule out scratching the entire MAX program. When this happens, the CSeries will be revived with the renamed A220, and it would support the expansion of the product line to include larger versions.
Boeing loses orders for at least 1000 to 2000 jets as Next Generation, the previous model 737 does not have the same fuel efficiency. Currently, the entire dialog is on the software because the GE (GE) engine is fine. I've read a review here that explains how the 737's nose is raised, the airflow on the wings is affected, and the engines stall. This is normal to a degree. As a result of stalling, the sensor-controlled software launches the jet and repositions it. The nose of the aircraft tends to get stronger with the MAX as the engine is much stronger. So this is a vicious circle that requires absolute perfect execution to avoid this. Nonetheless, it could also have a major impact on GE, as its Boeing engine loses more than 4,000 737 ordered engines.
So far I have not read anything about switching the engines of the MAX to Pratt engines. It's probably not an option. Everything points to the end of the 737 lifecycle after one to many modifications. So it looks like Boeing needs to quickly develop a new single-aisle aircraft. From paper to construction, it is 7 to 10 years and 10 to 15 billion dollars. There may be a solution with the recently acquired Embraer (ERJ) line, but even that is unlikely. It appears that Embraer has sold to Boeing because their regional lineup has not been sold.
So far, it looks like Airbus, Bombardier and Pratt will win here. However, the A320 NEO was probably also certified for its historical safety record of the original design. Now we hope that Airbus has properly rebooted the A320 and has proven reliable over time. Bombardier and Caisse de dépôt in Québec still together account for 49% of the A220 program, and we could see a tremendous increase in revenue for these aircraft if Boeing's problems are not resolved for a few months. If and when this can be (or will) be resolved is anyone's guess, unless you are working for Boeing and have privileged information.
Some governance issues with Boeing.
There are some notable problems that have confused me here. Initially, the WSJ released a story Friday (Friday) stating that Mr. Muilenburg, CEO of Boeing, has been silent this week, with the exception of a tweet that has given condolences to families and victims. There are some disclosures on their website that describe the problem with the software, but you are very uncomfortable with the general setting. For example, a sentence is written as follows:
"In the last few months and after the flight of Lion Air Flight 610, Boeing has developed a flight control software extension for the 737 MAX, with which a already safe aircraft even safer. "
I added a few keywords in bold, as I think Boeing shows a very strong rejection in that language. Obviously nobody believes that the 737 MAX is already safe.
Second, Boeing lodged an appeal with the US Department of Commerce in 2017 while the CSeries were still under the leadership of Bombardier, and requested an unfair business practice by a foreign company or Bombardier to earn an order from Delta. As a result, the Ministry of Commerce imposed a tax rate of 220% on the transaction.
The matter escalated for several quarters, causing Prime Minister Trudeau in Canada and President Trump to review the matter. Boeing refused to clarify the situation, despite reports from Bombardier, Delta and Canada, that the CSeries jets did not compete with any of the Boeing aircraft. This was ultimately the US International Trade Commission (ITC) The order was not in competition with Boeing, but the damage was done. The problem dragged on, almost with the intention of procedurally abusing and ending the ongoing dialogue between Bombardier and other airlines. Above all, these airlines give orders to all aviation manufacturers. However, if transactions in the US may be subject to countervailing duties, US airlines rightly avoid this process.
In my eyes, Boeing, a giant in the business, joked with Bombardier, a developer of New Airplane. Although challenged by his junior status, Bombardier became credible with the airlines, and Boeing used court proceedings to shut them out, and that was not really cool.
Finally, I came across a well-written document on the internet, in which it tells something about story Boeing and Airbus. I warmly recommend to investors of these companies to take a few minutes here.
Trading Idea – Sale of Boeing Stocks and Purchase of Bombardier B Shares
We know that Boeing stock has $ 292 in support. Here the stocks found support during the Christmas capitulation of most stocks. Currently, the Boeing 325 puts that expire in January 2021 earn $ 29.75. What is wrong with that? The probability of a put is 50:50, and if you have Boeing in their support level, the amount is $ 295.
Next, you should invest $ 29,75 in the put premium on Bombardier B shares. Therefore, you buy more than 10 Bombardier B shares worth $ 2.85 each for each put.
Possible consequences are that Boeing fixes the problem or Boeing does not solve the problem.
When the MAX is back in the air, Boeing stocks can reach the $ 440 level again, but you'll have Bombardier B shares at the current price level, essentially for the potential takeover of Boeing stock at a discount from $ 80 to the current price.
In the case of No. Before MAX becomes fix, you will have Boeing stock in the support level, about $ 295, but you will also own Bombardier B stock. In addition, these shares will have much more upside potential if Boeing is without a single aviation plane for about a dozen years
In my opinion, the longest expiration of the option, January 2021, is the safest approach because it leaves more time for itself Industry leaves things. The ability to place shares of Boeing at $ 325 in January 2021, while stocks are $ 379, is much lower than selling puts that are about to expire at higher strike prices. If you want to sell a short-term put, you will earn less than $ 29.75 a share and you run the risk of keeping Boeing at a higher level than your last level of support.
What if we buy Airbus shares with put premiums in lieu of Bombardier B shares.
The Airbus A320 NEO production plan is essentially fully booked for several years in the future. New orders would probably be subordinated to existing orders, making them much less likely.
The case for Airbus A220 (formerly CSeries): Is it Catch And Shelve or Sell and Build?
Anyone who follows Aerospace knows he is bloated egos among the dominant manufacturers, namely Airbus and Boeing. Of course, when reading messages containing competitors' comments, they are less flattering than their comments on their own products. Essentially, the Bombardier single-aisle jet, CSeries, was commonly referred to as a small, small aircraft after its approval by the FAA.
Airbus and Boeing were primarily aimed at discrediting a good product because of its size, except in modified versions. The CSeries became more meaningful to add more capacity. This meant that larger versions of the beautiful small aircraft could compete with the A320 NEO and 737 MAX aircraft. Therefore, Boeing attempted to hinder the development of larger versions of the CSeries, now A220, with their complaint, while Airbus decided to take the lead in the CSeries program and control its future development.
When I learned about the partnership between Airbus and Bombardier for the first time, my first thought was that I came to the conclusion that this was a catch-and-shift strategy for the CSeries, which was renamed A220. I've revised my position since Airbus announced in January that it is building a new facility to build the A220 jets at its existing Alabama site.
This is essentially the supporting piece of evidence that Airbus is actively selling and wanting to build A220 aircraft forward. I believe that Boeing's security issues are a catalyst for more airlines, and orders for several thousand new A220s could be ordered, including modified larger versions of the aircraft. If you are like me, you do not know if the 737 MAX will survive these crashes, so the odds of survival are only 50:50. With more than 4000 737 MAX values ordered, these jobs must be executed elsewhere because the production schedule for the A320 NEO is already full.
Unlike Bombardier, Airbus has the financial resources to continue and improve the program. However, Bombardier can still succeed with its 38% stake in the A220 program, and they also have an informal 11% appeal held by Québec. However, to be clear, the current partnership is based on a complicated formula, according to which Airbus holds in five or six years an option to acquire full ownership of the A220 program at a valuation to be determined at that time. If the 737 MAX is discontinued, the A220 should gain significantly more credibility and value.
Bombardier Commercial And Business Jets.
Finally, Bombardier is now focusing on CRJ's regional Challenger range and recently announced a modified version of the CRJ550 configuration. I've added an excerpt from a recent February news release from GlobeNewswire in the next paragraph.
"This aircraft model is the world's first 50-seat aircraft equipped with three aircraft. Bombardier Commercial Aircraft is pleased to officially launch the new CRJ550 aircraft. It is the world's first 50-seater aircraft with three aircraft that meets the expectations of today's passengers. The CRJ550 is a new CRJ-series aircraft with a new sample certificate based on the CRJ700. United Airlines is the first customer of this new model. "
I believe this idea, though untested, will prove to be a crucial step for CRJ regional jets.
Confirmation from United confirms the 50-seater aircraft is desirable. The modified configuration supports improved sales potential with a 3-class cabin in all market segments. There are 700 Regionals with 50 seats, and when this fleet is renewed, airlines will have a better hand luggage and ease of use solution.
To conclude this article, I have inserted bullets from a press release published this month by GlebeNewswire, as I believe Bombardier's case in the business jet category continues to progress.
- The extraordinary 8,152 nm flight of the Global 7500 Jet is the longest mission ever flown by a purpose built business jet.
- Flight also sets a record for highest speed over the longest distance in the history of business aviation: Singapore-Tucson, AZ connection *
- Aircraft whose fuel reserves are well above NBAA requirements; A remaining fuel share of 4,300 pounds means nearly 1.5 hours of additional flight.
- Aircraft offers the industry's largest cabin and cabin experience, perfect for trans-oceanic travel and an exceptionally smooth ride.
Bombardier clearly believes in a wealth of great products in rail and air travel. Although they are among the four leading suppliers of rolling stock for passengers in the railway and subway industry. You are the leading business jet manufacturer in the world. They have an economic share of 38% in the A220. They have a leading regional jet family with CRJ. Since the appointment of Alain Bellemare as CEO, the set goals have been achieved or exceeded. In the future, Bombardier will focus on delivering contracted products and offloading the balance sheet. Obviously, the stock is facing headwinds due to this leverage and is best suited for aggressive investors. However, this turnaround offers above-average recovery potential until 2022-2024, although there is some leverage risk.
I recommend the purchase of Bombardier B shares.
Disclosure: I am / we are long BDRBF, GE. I wrote this article myself, and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose warehouse is mentioned in this article.