Bombardier upgraded to ’BB-’ by S&P on earnings growth

Investing.com -- S&P Global Ratings upgraded Montreal-based business jet manufacturer Bombardier Inc (TSX:BBDb). to ’BB-’ from ’B+’ on Tuesday, citing increased deliveries and backlog that will drive expansion of margins, earnings, and operating cash flows.

The rating agency also raised its issue-level ratings on the company’s unsecured debt to ’BB-’ from ’B+’, while maintaining the ’4’ recovery rating. Additionally, S&P upgraded the rating on Bombardier (OTC:BDRBF)’s preferred shares to ’B-’ from ’CCC+’.

Bombardier’s business jet deliveries are expected to exceed 150 units in 2025, demonstrating successful production increases of its Global and Challenger series jets despite industry-wide supply chain challenges. This production ramp-up, combined with growth in aftermarket services, has contributed to increased scale and EBITDA margins.

As the second-largest business jet manufacturer by revenue behind Gulfstream, Bombardier holds approximately 20% market share based on units delivered. The company is well-positioned in the large and medium cabin business jet categories, with its flagship Global series considered best-in-class in the ultra-long-range jet market.

The Global 8000 is set to enter service later in 2025, featuring modest enhancements to the Global 7500 that entered service in late 2018. This addition required minimal investment and should help Bombardier maintain or grow its market position.

S&P forecasts Bombardier will deliver about 150 jets annually over the next few years while maintaining cost controls and pursuing growth in higher-margin aftermarket services and defense contracts. The rating agency projects annual adjusted EBITDA growth to average in the high-single-digit range over the next three years.

Bombardier’s aftermarket services segment has more than doubled since 2020, generating over $2 billion in revenue in 2024, representing about 23% of consolidated revenue. This growth came from market share gains amid favorable aircraft usage and the company’s life-cycle management approach.

S&P expects annual revenue growth in the aftermarket segment to moderate to the low- to mid-single-digit range as Bombardier maintains 50%-52% share of its addressable market and leverages its large installed fleet of approximately 5,100 aircraft worldwide.

The rating upgrade reflects S&P’s expectation for adjusted debt to EBITDA of 2.5x-3.0x over the next few years with improved financial flexibility from higher free operating cash flow (FOCF) generation. The agency plans to start netting cash against debt this year, which contributes to stronger adjusted credit measures.

S&P assumes Bombardier will maintain $1 billion–$1.3 billion of cash and cash equivalents, which contributes to a reduction in leverage of about 1x when netted against debt. The agency forecasts annual FOCF generation of more than $700 million, providing Bombardier with financial flexibility to further reduce debt or cushion against potential earnings weakness.

The stable outlook reflects S&P’s expectation that Bombardier will continue to execute on its over $14 billion backlog while growing its aftermarket services, supporting low- to mid-single-digit annual revenue growth and modest margin expansion over the next few years.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.