Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH !!!!
Background:
Bombardier is a Canadian company that after a colorful past as a conglomerate and an “almost bankruptcy” in 2020 is now fully focused on manufacturing Private Jets and until recently has been a poster child of a very successful turn-around. My friend @Govro12 from the Wintergems substack has written a very nice post on Bombardier just a few weeks ago which I highly recommend to read.
High level Presentation:
Although I only could convince myself to buy a small starter position (<1%, to keep me interested), I presented Bombardier as a potential interesting investment case in a private investor meeting some days ago. Here is the presentation which I admit is pretty high level. Spoiler alert: I would not recommend to invest right now.
What’s the problem ? Tariffs of course…
Of course it’s all about tariffs. Bombardier is a Canadian manufacturer. 60% of the Private Jet market is concentrated in the US and their biggest competitor is Gulfstream, which is a US company and a subsidiary of General Dynamics, a larger Aerospace/Defense conglomerate.
So at a first glance, Bombardier looks like an obvious looser, although so far they were not subject to tariffs (they have been so far shielded as they are USMCA compliant, but that ends at the end of March).
However, things are not so clear. On the one hand, ~50% of the parts of a Bombardier Jet are typically manufactured actually in the US. On the other hand, also Gulfstream’s supply chain is also split between Mexico, The US and Canada.
For instance most the Aluminium used by Gulfstream is from Canada, as well as the turbines and other parts. Looking at General Dynamics’ share price compared to Bombardier’s int the recent months, seems to indicate that General Dynamics performed better, but doesn’t look like a clear winner either:
Clearly the comparison is not perfect as Gulfstream is only around 20% of sales and maybe 25% of profits. But still it shows that there seem to be no winners in this crazy tariff war that the Amercians have started.
What’s next:
At the time of writing, it is still unclear what happens on April 2nd, which Trump named “liberation day”. But to me it seems more and more likely that there will be tarffs. So far many market participants had assumed that Trump was only going for some nominal concessions, but now it seems more and more likely that the US indeed intends to impose tariffs on each and everyone in order to balance their trade balance without giving much consideration to “collateral damage” even for their own economy.
The problem for a company like Bombardier is maybe not the tariff as such, because there seem to be some countermeasures they could implement, like moving final assembly to the US etc.
But the problem clearly is that as long as you don’t know how the whole tariff thing will look like, it doesn’t make that much sense for a company like Bombardier to invest into alternatives.
Three possible scenarios:
With the announcement on April 2nd, we might have more clarity. I see in principal 3 different secenarios:
- No tariffs on Aerospace
If the Trump Administration would permananently except Aerospace from tariffs, the share price would certainly go up, but I think then Bombardier would be a pretty clear investment case even at a 10% or 15% higher share price.
2. Permanent tariffs on Aerospace
If Trump would impose signifiant permanent tariffs (>=20%) on imports from Canada, including Aerospace, then this would clearly disrupt Bombardier’s business (as well as Gulfstream’s). In that case, I would expect the share price of Bombardier to drop further. The business outlook for at least 2025 and 2026 woudl be quite uncertain and one would need to wait and see where the share prcie finds support. However, in the mid term, a share prcie below 70 CAD could represent a decent entry point.
3. Temporary tariffs
If we get again “temporary” tariffs, this would not change the situation much and I guess in that scenario, the share price might drop less but it would be much harder to determine if Bombardier is a good inevstment or not.
Summary:
So without getting into much detail, it seems that right now, it’s maybe not the best time to invest into Bombardier as potential future US tariffs are clearly a major issue.
Which is very unfortunate, as the new, focused Bombardier seems to be a very interesting company in a business with very nice long term tailwinds.
For a “Special Situation” investment, for me, the expected values per scenario are not clear enough in order to “handicap” the risk return profile appropriately.
Maybe April 2nd (“Liberation day”) brings more clarity, but at least from my perspective, Trump so far always has over promised and under delivered.
In any case I will watch this closely and update when there is more information.