Bombardier upgraded to 'BB-' by S&P on earnings growth

S&P Global Ratings upgraded Bombardier Inc. to 'BB-' from 'B+', citing increased business jet deliveries and a growing backlog that are expected to drive margin and earnings expansion. The rating agency forecasts Bombardier will deliver approximately 150 jets annually, with adjusted EBITDA growth averaging in the high-single-digit range over the next three years, supported by growth in aftermarket services, which generated over $2 billion in revenue in 2024. The upgrade reflects S&P's expectation for improved financial flexibility from higher free operating cash flow, projecting annual generation of more than $700 million.

Analysis

S&P Global Ratings has upgraded Bombardier Inc. (TSX:BBDb) to 'BB-' from 'B+', signalling an improved credit profile driven by robust operational performance and a strengthened financial outlook. The upgrade is underpinned by increased business jet deliveries, with expectations to exceed 150 units in 2025 and maintain approximately 150 units annually thereafter, alongside a substantial backlog valued at over $14 billion. This operational strength, stemming from successful production increases of its Global and Challenger series jets despite industry supply chain headwinds, is projected to drive margin expansion, earnings growth, and enhanced operating cash flows. Bombardier's aftermarket services segment has demonstrated significant growth, more than doubling since 2020 to generate over $2 billion in revenue in 2024, constituting about 23% of consolidated revenue; S&P anticipates this segment will see moderated low- to mid-single-digit annual growth as the company maintains its 50%-52% share of its addressable market. The rating agency forecasts annual adjusted EBITDA growth to average in the high-single-digit range over the next three years and annual free operating cash flow (FOCF) generation to surpass $700 million. This improved FOCF is expected to enhance financial flexibility, enabling debt reduction and contributing to a projected adjusted debt to EBITDA ratio of 2.5x-3.0x, further supported by S&P's intention to net cash (assumed at $1 billion–$1.3 billion) against debt. The upcoming entry into service of the Global 8000 jet, requiring minimal incremental investment, is poised to help Bombardier maintain or grow its approximately 20% market share by units delivered.

Key Decisions for Investors

• Investors should view the S&P credit rating upgrade to 'BB-' as a material improvement in Bombardier's financial health, potentially reducing its cost of capital and increasing the attractiveness of its debt and equity securities.
• Consider the company's sustained ability to execute on its production targets of approximately 150 jets annually and manage its over $14 billion backlog, as these are key to achieving the forecasted high-single-digit EBITDA growth and margin expansion.
• Monitor the robust free operating cash flow generation, projected above $700 million annually, which provides significant capacity for deleveraging and could support future shareholder returns or strategic investments.