Bombardier wins rail signaling deal in Ethiopia

Ethiopia might be the last place an outfit like Bombardier Inc. (BBD.B–TSX) would look for business.

After all, its stock in trade — zippy business jets and high-speed rail passenger cars — would seem out of place in one of the poorest countries on the planet.

Not only does Ethiopia have an unemployment rate of 17.5 per cent, but 39 per cent of the population lives below the poverty line. Moreover, of its almost 97 million people, less than 40 per cent can read and write.

Yet, Bombardier recently bagged a US$45 million deal to supply signaling for a 400-kilometre railway Ethiopia is now building in the northeast part of the country between Awash and Woldia.

And far from being a Third World hand-me-down, the technology the company is supplying is the same now in use in South Africa, a far more advanced country. Indeed, the system will ensure the new line’s “high utilization and interoperability with other lines and vehicles,” says Peter Cedervall, a Bombardier official.

Bombardier’s contract win in Ethiopia is just the latest in a string of successes its rail equipment division has scored.

 In late September, for example, the company inked a deal with New Jersey Transit for both operations and maintenance services for that company’s River Line light rail system. The $331 million deal, which runs for 15 years, can be renewed for another five.

Meanwhile, earlier this year, Bombardier signed an agreement to supply 29 commuter trains to Germany’s Deutsche Bahn. The contract, worth US$203 million, is the 13th call-off from a US$1.4 billion framework agreement signed in 2007.

Elsewhere, on the other side of the planet, the company is busy filling a $681 million order for more than 360 cars for Bay Area Rapid Transit, the high-speed commuter system that ties San Francisco to its surrounding communities. The order brings to 775 the number of cars Bombardier has so far sold to BART.

If Bombardier’s rail passenger division continues to roll down the tracks, its commercial aviation wing continues to fly forward, given the interest that several airlines have expressed in the company’s C Series jets.

In mid-July, for example, Bombardier received a letter of intent from Zhejiang Loong, one of China’s domestic airlines, for 20 CS 100 planes. The deal, if sealed, would be worth roughly US$1.3 billion.

Bombardier also received a letter of intent from Petra Airlines, a regional carrier headquartered in Amman, Jordan, for up to four CS Series planes — an order that could total $298.4 million.

The two announcements come on the heels of a letter of intent that Bombardier got from Britain’s Falko Regional Aircraft, a leasing operation, for up to 24 CS 100 planes.

Yet, all the news may be bittersweet. True, any orders are better than none at all. But the deals may be worth far less than what Bombardier rivals have reportedly bagged with much bigger airlines.

Moreover, the company may encounter some turbulence in its plan to build an aircraft factory in Russia. True, Bombardier President Pierre Beaudoin was reported in August to still be negotiating with Moscow. But the factory’s operations could be crimped should Canada retaliate against Russia for the latter’s fight with the Ukraine.

Russia has already OK’d the construction of the factory which would turn out Q400 turboprop planes. The factory, which would be a joint venture, is to be located roughly 900 kilometers southeast of Moscow.

In the meantime, Bombardier is considering another joint venture for the manufacture of the Q400s, but in China, not Russia. Yet, although China is potentially a huge market, the possibility of opening a factory there remains at the discussion stage.

For most of our market analysts this month, Bombardier was a stock to ride.

Of the 13 folks we surveyed, 10 rated the company a “buy;” one, a “buy/hold” and only two, a “hold,” lofting it into fourth position in our list of top-10 buys.

For the three months ended June 30, Bombardier’s net income fell to US$155 million or $0.08 a share, from $180 million, or $0.10 a share, for the similar period in 2013. Revenue, however, was higher, rising 11.4 per cent to US$4.9 billion, while gross margins slid two per cent to US$658 million.

For the six months ended June 30, Bombardier’s net income fell to US$270 million or $0.14 a share, from $328 million, or $0.18 a share, for the similar period in 2013. But revenue presented a brighter picture, increasing 4.5 per cent to US$9.2 billion, while gross margin slid 2.9 per cent to US$1.3 billion.

 

Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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