(The following article by Monica Gutschi appeared in the Montreal Gazette on July 31.)
MONTREAL — Bombardier Inc.’s transportation division has long played second fiddle to its sexier aerospace sister. President Pierre Lortie believes that is about to change.
“I think we will be a significant and positive contribution to Bombardier going forward,” he said in an interview.
As proof, he pointed to the growth of railway commuter systems in Europe and the potential for high-speed trains in North America.
But for investors, profits are key. And that, Lortie concedes, is the major challenge.
There is no doubt that transportation is a core division for Bombardier. This year alone, it has announced about $12 billion in contracts around the world.
Transportation now represents 57 per cent of Bombardier’s $48.8 billion in backlog, 48 per cent of its 75,000-strong workforce and nearly half its $21 billion in annual revenues.
Yet financial markets merely shrug at contract wins by Bombardier Transportation, and shudder at perceived losses in the aerospace division. That’s because margins – ergo profits – in building an airplane have traditionally been more than double, even triple, those obtained at Transportation.
At least they were. Transportation reported a 4.5 per-cent margin in the first quarter, up from 3.3 per cent last year and 2.2 per cent a year earlier.
The airline industry’s slump and accounting changes pushed aerospace margins into negative territory – about -0.3 per cent – in the most recent quarter. But analysts expect them to someday return to the 11 to 12 per cent margins enjoyed only two years ago.
Transportation will never match that level of profitability, Lortie said. “As long as we have utilized assets that are dramatically lower than the rest of the manufacturing sector, we won’t have those margins.”
However, he believes profit margins can reach the seven-per-cent target he set last year.