Bombardier Inc's business-jet production cuts appear to be paying off, exec says

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TORONTO — Bombardier Inc.’s decision to curtail production of its largest business jets one year ago appears to be paying off, with the aircraft holding significantly more of their value than the competition.

In May 2015, Bombardier announced that it would lay off approximately 1,750 workers as part of an attempt to better match production of the Global 5000 and 6000 with customer demand.

In particular, economic weakness and instability in China, Russia and Latin America was hurting order intake for the ultra-long-range private jets.

At the time, the move was greeted as another blow for the company, which was distracted by an ongoing order drought for its CSeries commercial jet and had recently scrapped plans for a Learjet 85 business jet, taking a US$2.6-billion writedown in the process.

However, a year later it’s apparent that it was the right move, said Brad Nolen, director of product strategy and marketing at Bombardier Business Aircraft.

Much like used cars, private jets depreciate the minute they’re driven off the lot (or flown out of the hangar). The same way that some vehicles hold their resale value better than others, some aircraft depreciate more slowly than the competition.

“Part of the reason that we took that decision was to protect the value of our aircraft overall, to make sure that we weren’t oversupplying the market,” Nolen said in an interview at a Toronto media event Tuesday.

“That’s actually starting to take effect in the marketplace. … If you look at the Bombardier Global aircraft on the market, our competitors’ aircraft depreciated up to three times as much as the Global did (in 2015).”

Bombardier delivered 31 business jets in the first quarter, down from 45 a year earlier. However, net orders in the quarter jumped to 40 from 19, pushing the division’s book-to-bill ratio to 1.3, and the company says it’s on track to meet its goal of delivering 150 business jets this year.

Although the overall market for private aircraft remains “volatile,” a “resilient U.S. market” is boosting demand for the large Global and midsize Challenger brands, chief financial officer John Di Bert said on a conference call with analysts last week.

Demand for the smaller, light-sized Learjet, on the other hand, remains “soft,” as the lowest end of any market is generally hit the hardest in times of economic weakness.

“The light jet market was the market which was most impacted by the downturn,” Nolen said, adding that it’s “coming back slowly.”

“We’re slowly getting back up to pre-recession levels, but the light jet market will take a little bit longer. It’ll be the last to recover.”

This is why Bombardier decided to cancel development of the Learjet 85, which would have been the largest and longest-range Learjet ever built.

The Learjet 85 was launched in 2007 at the peak of the pre-recession private-jet market, and there simply isn’t demand for it in today’s environment, which is “still very tight,” Nolen said.

“In the current context, it would not make sense,” he said.