Would Only Marginally Alleviate The Current Market Overcapacity, Analyst Says

Troubled Bombardier has reportedly been in talks to sell its business jet division to Textron, according to The Wall Street Journal. Were this to come to fruition, it would have several implications for the business jet industry.

The business jet market is overcrowded, as I’ve written previously: Five primary manufacturers produce 40 different models vying for just 700 worldwide sales a year. A Textron purchase of Bombardier would help alleviate the overcapacity — somewhat.

Bombardier’s small jet division, Learjet, would squarely overlap with the Citation jets made by Textron’s Cessna unit. Learjet sales have slowed significantly and the Lear 70 and Lear 75 models face a very uncertain future, whether under Textron or Bombardier.

Moving up the Bombardier jet model food chain brings us to the midsize Challenger line. The long successful Challenger 350, or CL350, sits almost exactly on top of Cessna’s brand-new Citation Longitude. While the CL350 has a nice following and has earned respect, it's been six years since it debuted and it’s arguably in need of a makeover.

The same goes for the next larger Challenger 650, which also had its last upgrade at around the same time as the CL350. However the CL650 differs in that it is a much older design, and has undergone so many upgrades over time with engines, avionics and other improvements that there’s really nowhere left to go. It’s likely that Cessna has a product path for its new Longitude, call it the Longitude+, that could conceivably position itself squarely between the CL350 and CL650, essentially eliminating both models. That leaves the most lucrative and largest Bombardier jets, the Global line, ripe for Textron to plug it into its current lineup of small and medium jets, giving it the long-missing large products to effectively compete with the likes of General Dynamics’ Gulfstream and Dassault’s Falcon units.

Thus, should the deal close, a maximum of just four models would come off the market, leaving 36, which wouldn’t go far toward solving the industry’s oversupply problem.

Textron is the only business jet maker that makes sense as a new owner. Embraer is busy with Boeing while Gulfstream and Dassault have competing large cabin products to Bombardier’s. However, there are other potential bidders.

Airbus could always enter the picture since they already have a relationship with Bombardier through the A220 airliner, and may wish to further expand their product offerings. Mitsubishi, who once played in the business jet market, bought the regional jet division from Bombardier last year, the airframe bones of which match the CL605. Lockheed Martin has also been postulated as a suspect, having seen the success General Dynamics had in buying the Gulfstream program. Lastly, private equity has played in the business jet game before, having previously owned Gulfstream, the former Hawker Beechcraft and others.

There’s also a good chance that a Textron deal will never come to fruition. Textron’s financial performance has been stressed lately, and the outlook going forward isn’t looking much better. It would thus seem a stretch for Textron to pay what would likely be in the billions of dollars for Bombardier business jets. Furthermore, they will certainly try to carve the Learjet and Challenger lines out of the deal. It’s more likely that Textron waits it out until Bombardier feels more heat from its debt load, or in a worst-case scenario enters bankruptcy and jettisons much of its debt.

(Source: Brian Foley news release. Image from file)

FMI: www.brifo.com