Monday, February 2, 2009

Corporate Jets and the Drop in Bombardier

When GM Executives went to Washington to ask for a bailout, they faced a slew of criticism based on their use of a corporate jet. This story is hardly unique for most corporations who are all facing hard times.

It seems that Bombardier is now suffering from a decline in orders. Corporations who have put down payments for jets are expected to walk away from their deposits rather than sink more money into non-revenue generating assets, especially those associated with luxury.

Companies are doing anything they can to improve the EPS and cashflow, even if they are only one time items to reduce and smooth out the decline. Cutting jobs is causing a lot of pain and reducing "luxury" items (whether or not it dramatically affects the bottom line) is necessary to at least send a message to stake holders that management is mindful of the current environment.

Analysts have suggested that it should trade around 7x Forward PE or $3.60 or below (which it is already at).

However, analogous to the decline of jobs, managers are expecting an over extension of job cuts (and order losses) which will be pent up during the recession so the boom (although delayed) will eventually percolate into Bombardier as a lagging indicator of the market.

End result, buy Bombardier late into the economy's recovery (excluding the effects of their train and other business arms) in a years time or later.

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