Thursday was a welcome positive day in the markets.
The S&P 500 was up 0.5% and Toronto was up 1.6%
Bombardier bucked the trend and was down 9% on news that United Airlines had chosen Boeing for a large plane order that Bombardier was hoping to score for the C-Series. South West airlines also announced an order though I don’t recall Bombardier ever being in the running for that one.
What Bombardier does not publicly admit is that airlines are probably afraid to place a deposit with them or rely on them to deliver and be around for after-sales service for the life of the plane. Also, Bombardier has limited production capacity and new orders placed now will be at the end of fairly big (though not nearly big enough) order book.
It’s a nice gig these Beaudoin’s have as they lose billions of their investor’s money. (And they lose some of their own money too and the family legacy and reputation the family had built earlier, family gatherings must not be much fun.) But they do provide a lot of jobs and they themselves have prestigious jobs and can score amazing photo ops with their money-losing planes. (They do make great products.)
Still, I think Bombardier will muddle through. They will ultimately score some orders and with government assistance will stumble on. They will deliver some C-series planes.
It’s a tough business. Imagine if you hope to sell a plane for an 8% margin but your customer insists on a 15% discount to list price. Believe it or not, Bombardier aspires to raise its EBIT margin to a paltry 8%. Just 8%, before interest and tax, is their idea of success.
One of these day there will be some good news and the stock could provide at least some bounce.
It will be interesting to see if most of the non-family owners finally vote against the current directors this Spring. It’s one thing for the family to vote for these people but even the external shareholders voted overwhelmingly in favor of the directors last Spring. Surely investors will wake up this time and send a message?
Canadian Pacific was down after reporting its earnings. I am more hopeful for Canadian National because it will benefit from its significant U.S. operations. Also I understand CN is somewhat less dependent on transporting commodities. CN will report lower traffic in Q4 but perhaps the currency benefit will still allow for a strong quarter or at least better than current apparently weak expectations.
As the various U.S. companies report earnings the market seems to be surprised at the negative impact of the high U.S. dollar on the multi-nationals. It should not be a surprise. Correspondingly, some of the Canadians companies should benefit greatly frown the lower Canadians dollar and so perhaps there will some positive earnings surprises.