Bombardier Opens Door to Defense M&A as Nations Boost Spending

The engine of a Bombardier Global 6500 airplane at the company's completion center in Dorval, Quebec. Photo by Graham Hughes /Photographer: Graham Hughes/Bloo

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(Bloomberg) — Canadian jet manufacturer Bombardier Inc. is considering mergers and acquisitions in the defense sector, seeking to capitalize on governments’ plans to spend heavily to rearm their militaries.

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“There’s very nice opportunities shaping up for the defense business also that we will consider investing,” Chief Executive Officer Eric Martel said in a conference call with analysts. 

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Any deals would likely be “incremental” acquisitions “that could add value to our existing business of services and defense,” Martel said. Bombardier has delivered four defense jets this year, but that will accelerate. 

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“You have to think of a double-digit number” for the fourth quarter, the CEO said.

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Canadian Prime Minister Mark Carney’s budget, released Tuesday, committed about C$82 billion ($58 billion) in new spending on a cash basis for the Canadian Armed Forces over five years. In addition to jets, Martel has said his firm could be capable of building drones for Canada.

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In 2023, the Canadian government made a deal with Boeing Co. to order Poseidon military surveillance aircraft, despite a competing proposal put forward by Bombardier. The company’s plan involved a militarized version of its Global 6500 business jet, developed in partnership with General Dynamics Corp.

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Bombardier has executed a successful turnaround strategy since a massive restructuring to resolve a debt crisis several years ago. The company sold off its commercial jets and trains divisions and ended production of the small-cabin Learjet, betting on its mid- and large-size private jets, the Challenger and the Global.

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In the third quarter, the company reported revenue of $2.3 billion, an 11% increase from the previous year, but adjusted earnings of $1.21 per share missed the average analyst estimate by 20 cents.

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The backlog reached $16.6 billion in the quarter, representing a unit book-to-bill ratio of 1.3.

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Supply chain challenges for engines continue to put pressure on the company’s output. “Margin growth was driven by improved aircraft mix and stronger pricing, but was partly offset by transitory supply-chain-related costs,” Chief Financial Officer Bart Demosky told analysts.

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Shares of Bombardier were down 1.6% to C$194.92 as of 9:54 a.m. in Toronto.

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Bond, a new fractional-ownership private jet company backed by KKR & Co., agreed to buy 50 aircraft in a deal worth $1.7 billion. The order includes a services agreement and an option to buy an additional 70 planes which, if exercised in full, would put the value of the deal at more than $4 billion.

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Bombardier’s latest business jet model, the Global 8000, also received its Transport Canada certification Wednesday, paving the way for service this year. The company promotes it as the fastest business aircraft in the market — it has reached a speed of Mach 0.95.

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Carney’s budget scrapped a luxury tax on aircraft worth more than C$100,000 that had been put in place by the previous government of Justin Trudeau. Bombardier welcomed the decision, saying that the change would potentially create more than 600 new jobs in Canada over the coming years.

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Martel said some customers told him they wouldn’t place an order while the luxury tax was in place. “Now that the tax is out, we have catch-up to do,” he said. 

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