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UPDATE 3-Bombardier bets on aftermarket demand to help hit 2025 targets

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Allison Lampert
·2 min read
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(Adds bond reaction, comment from media news conference)

By Allison Lampert

MONTREAL, March 4 (Reuters) - Bombardier told investors on Thursday that stronger sales of aftermarket services would help the pure-play business jet maker hit 2025 targets, including $7.5 billion in revenues.

Montreal-based Bombardier said it expects to turn cash flow positive in 2022 while slashing debt.

Chief Executive Éric Martel pledged a "more resilient business," by cutting costs and diversifying toward higher-margin services.

Bombardier plans to use $3.6 billion in net proceeds from the recent sale of its rail division to France's Alstom SA to pay off near-term maturities, focusing on 2021 and 2022 tranches. Bombardier has a long-term debt of $10.1 billion.

Bombardier's bonds rallied on Thursday, with the yield on its $500 million bond that matures in March 2022 and has a 5.75% coupon plunging by nearly 150 basis points to 2.015%.

Bombardier aims to capture a greater share of sales of aircraft products and maintenance packages, growing its aftermarket unit from 18% of revenue in 2020 to 27% by 2025, at a time when jet deliveries could take years to recover after COVID-19.

“We are in the final phase of the largest aftermarket footprint expansion in Bombardier’s history,” Martel told the company's virtual investor day. “We are adding 50% more space to our worldwide network.”

Bombardier has evolved in recent years from a plane and train maker to a business jet manufacturer, generating revenue of $6.5 billion in 2020. After facing a cash crunch in 2015, Bombardier shed assets during a five-year company turnaround plan through 2020 that missed some targets.

"The market will have to assess whether this new Bombardier team can meet its long-term targets, versus the failure of the previous team to do so," Citi analyst Stephen Trent said in a note.

Bombardier expects to generate more than $500 million in free cash and $1.5 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and a 20% margin in 2025.

Bombardier's flagship Global 7500 jet, which lists for $75 million, is expected to be the biggest contributor to EBITDA over the next five years as production costs decline.

But the 7500 could face pressure from General Dynamics Corp's Gulfstream whose long-range G700 enters service next year.

Martel said there would be no new aircraft program before the back half of the decade and any jet would have to be financed without putting too much pressure on the balance sheet.

Bombardier shares were flat in midday trading.

(Reporting By Allison Lampert in Montreal. Additional reporting by Fergal Smith in Toronto; Editing by Steve Orlofsky and Nick Zieminski)