Bombardier in Fleet-Sale Talks After Buffett’s NetJets Order

Bombardier Inc. is in talks to sell more of its largest business aircraft models to fleet operators after a record order from Warren Buffett’s NetJets four months ago.

“NetJets has led the way, but we expect more of that to come,” Steve Ridolfi, president of Bombardier’s business-aircraft unit, said in a telephone interview before the National Business Aviation Association’s annual conference, which starts Oct. 30 in Orlando, Florida. “We can see it coming. We have ongoing campaigns.”

Business aircraft are the biggest product segment within Montreal-based Bombardier’s aerospace unit, generating almost four times as much in sales as commercial aircraft. Fleet orders for those planes stabilize revenue streams by providing a pipeline of deliveries rather than intermittent orders from individual or corporate customers.

“Fleet owners and managers never used to be as prevalent, but they are becoming more so now,” Chris Murray, a transportation analyst at PI Financial Corp., said in a telephone interview from Toronto. “You’re going to see these guys be there in size.”

Private-jet operators such as NetJets are one of three pillars of the business-aircraft industry, along with corporations and wealthy individuals. Each type of purchaser represents about one-third of the global market, Ridolfi said.

NetJets Order

NetJets, a unit of Buffett’s Berkshire Hathaway Inc., said in June it agreed to buy as many as 275 Bombardier Challenger aircraft, including 100 firm orders. If all the options are exercised, the agreement will be valued at about $7.3 billion -- eclipsing NetJets’ $6.7 billion purchase of as many as 120 Bombardier Global aircraft in March 2011 as the company’s largest private-plane order.

Industrywide private-jet shipments will probably rise 6 percent this year and 8 percent in 2013, market researcher Teal Group said in an April report. Deliveries plunged 29 percent in value from a 2008 peak through 2011, Teal said.

“Demand is solid, especially on the big airplanes,” Ridolfi said. “We are seeing really good activity, led by international markets, by guys wanting to re-fleet after being on the sidelines for four or five years.”

Business aircraft accounted for $1.9 billion, or about half of Bombardier’s aerospace revenue, in the six months through June 30. That’s almost four times the $483 million generated by sales of commercial planes such as the CRJ regional jets.

Qatar Airways

One potential fleet customer is Qatar Airways Ltd., which already operates Bombardier’s Global and Challenger models. Qatar Chief Executive Officer Akbar Al Baker said in April he planned to place a “large” business-jet order with Bombardier, and was aiming to announce it the following month.

Bombardier is still talking to Qatar about a purchase of Global 7000 and 8000 aircraft, Ridolfi said, declining to comment further. The planes have a list price of about $65 million.

Demand for large aircraft is such that Bombardier is considering boosting output of its Global jets, Ridolfi said. He declined to say when the move might take effect, or discuss the scope of the potential increase.

“You have to take it up slowly, given all the magnitude of the work and the intensity of the completion process,” Ridolfi said. “The Global has been a tank for us right through this recession. It’s continued to grow and grow.”

Bombardier had an order backlog equivalent to 35 months of production for the Global as June 30, exceeding its 24-to-30-month target range for the family of aircraft. Orders for the smaller Challenger jet amounted to 19 months of production, the company said in its second-quarter filing.

“The Global business is the crown jewel of Bombardier’s entire aerospace program right now,” said PI Financial’s Murray, who has a buy rating on Bombardier stock. “Larger business jets are a fabulous business to be in.”

Bombardier’s Class B shares rose 0.3 percent to C$3.74 at the close in Toronto. They have fallen 7.9 percent this year.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE