Under-performing Learjet topic of Bombardier earnings call

While the Learjet 75 wasn’t a driving factor in Bombardier Inc.’s second-quarter and first-half 2016 losses, company officials are concerned about the midsize jet’s slumping sales.

Bombardier said Friday it recorded a loss of $490 million on revenue of $4.3 billion in the second quarter of 2016. In the first half of the year, the loss climbed to $628 million on revenue of $8.2 billion.

The losses came as the company delivered fewer business jets and increased spending to ramp up production of its C Series jetliner, the first of which was delivered in June and flown in July by launch customer Swiss International Airlines.

Despite the losses, financial analysts were mostly complimentary of the company’s performance ahead of and during an earnings conference call Friday with CEO Alain Bellemare and chief financial officer John Di Bert.

Cowen and Co. analyst Cai von Rumohr said in a note to investors ahead of the call that Bombardier’s operating profitability was “better than expected” in the second quarter.

JPMorgan analyst Seth Seifman was largely upbeat about the plane and train maker’s report because it showed the company was on track to hitting the year-end 2016 financial metrics Bombardier had earlier laid out for analysts.

“On balance, we view Q2 results positively, mainly because Bombardier maintained all elements of its guidance and appears on track to achieve it,” Seifman wrote Friday morning.

The Bombardier Business Aircraft unit that includes Learjet delivered 42 business jets in the quarter and 73 in the first half of 2016. That compares with 47 in the second quarter and 92 in the first half of 2015.

Bombardier’s large cabin, long-range Global jets saw the greatest drop in year-over-year deliveries. It delivered 14 Global 5000 and 6000s in the second quarter of 2016 compared with 20 in the year-ago quarter. In the first half of 2016, Global deliveries totaled 28 compared with 37 in the first half of 2015.

Deliveries of Wichita-built Learjet 75s totaled five in the second quarter, flat to the same quarter a year ago. But for the first half of 2016, they were sharply lower at six compared with 14 in the first six months of last year.

Learjet deliveries were below expectations.

“Today, there is an oversupply in the market, especially for light jets,” Bellemare said. “In response we are looking at how we best position the Learjet 75 in this environment.”

Bellemare said there is “significant softness” in the light end of the business jet market combined with competitive pricing.

“We’ll continue monitoring this and making we sure continue pushing sales, and we’ll see where this goes,” he said.

Business jet forecaster Rolland Vincent agreed that the Learjet 75 — the only business jet Bombardier’s Wichita site is currently manufacturing — is in a “highly competitive segment” of the business jet market. Unlike Bombardier’s classification of the Learjet 75 as a light jet, Vincent and others in the industry classify the jet in the midsize category.

But at its $13.8 million price point, it’s “in that niche if you’ve got that much money to spend you might want to get a bit more airplane,” he said, such as competitor Textron Aviation’s Cessna Citation Latitude or Embraer’s Legacy 450.

“There’s price pressure from above and then you’ve got airplanes below, like the (Embraer) Phenom 300,” Vincent added.

On Thursday’s call, discussion of the Learjet 70 and 75 was the most it has been since former Pratt & Whitney Canada CEO Bellemare joined Bombardier in February 2015. Bellemare was brought in to turnaround the company that was struggling with the development of the C Series and ultimately shelved development of the Learjet 85 in Wichita, resulting in hundreds of layoffs here.

Not only did Bellemare raise discussion of Learjet in his opening remarks, analysts were also asking questions about the jet line, including whether its current production rates were sustainable long-term.

“It’s tough to make that call (on what the exact number is for a sustainable rate of Learjet production),” Di Bert said on the call. “I think we’re focused on selling planes in the second half.”

Di Bert added that Bombardier would like to have an average of 20 to 25 Learjet 75 deliveries annually. Last year, it delivered 32 jets.

Vincent, managing director of business aviation forecast firm JetNet iQ, thinks Bombardier officials are beginning to think more about Learjet’s future now that the company has its C Series delays and cost overruns largely behind them.

“Everything they say about Lear tends to have a cloud over it,” Vincent said. “They’re signaling they’re going to do something.”

What that something is is unclear to Vincent. It could be a sale of the Learjet product line or the addition of a strategic partner that has the capital and interest to invest in the program.

“Could be either one,” he said. “I don’t know. The brand is worth a lot of money. There’s value there. Maybe this property is more important to a partner.”

This story was originally published August 5, 2016 at 7:06 AM with the headline "Under-performing Learjet topic of Bombardier earnings call."