Bombardier Inc. (BBD/B) agreed to sell its Flexjet aircraft flight-share unit to a U.S. buyer who will order business jets valued at a minimum of $1.8 billion from the Montreal-based maker of planes and trains.
Bombardier will sell the Dallas-based unit for $185 million to Flexjet LLC, a new company funded by a group led by Directional Aviation Capital, according to a statement today. The buyer placed a firm order for 85 Learjet and Challenger business aircraft, as well as options for 160 more jets that would push the total value to $5.2 billion, Bombardier said.
The Flexjet order is the third significant win for Bombardier in the past 15 months. In November, it reached a $7.8 billion deal with luxury air-charter service VistaJet Holding SA for 56 Global-series planes and options for 86 more. In June 2012, Bombardier agreed to sell as many as 275 of its Challenger aircraft to the NetJets unit of Warren Buffett’s Berkshire Hathaway Inc. for $7.3 billion.
The announcement is a “net positive for Bombardier,” Cameron Doerksen, an analyst at National Bank Financial in Montreal, said in a note to clients. “Demand for the smaller Learjet line of jets has been weak in recent years so this order may help boost the production rate for these models.”
Even after disposing of Flexjet, Bombardier will still generate revenue from the sale of business jets, he said. Instead of selling the jets to customers in fractional shares, the company will recognize revenue on the sale of the entire plane, said Doerksen, who rates the company’s shares outperform.
Bombardier’s widely traded Class B shares gained 5.5 percent to C$4.98 at the close in Toronto, their biggest single-day gain since May 9. The stock has risen 32 percent this year, as the S&P/Toronto Stock Exchange Composite Index advanced 3.3 percent.
The sale of Flexjet will probably close by the end of the year, Bombardier said. The sale will require regulatory and government approvals, the company said.
Selling Flexjet “will allow Bombardier to focus on its core business areas,” Pierre Beaudoin, the planemaker’s chief executive officer, said in the statement. “I am confident that under its new ownership Flexjet will pursue its growth and diversification, continue to offer an outstanding experience to owners and customers and will expand its brand globally.”
Bombardier was the world’s biggest maker of business jets last year by revenue, according to the General Aviation Manufacturers Association. Bombardier shipped $5.8 billion of business jets last year, compared with $4.1 billion for General Dynamics Corp.’s Gulfstream unit.
“There is tremendous opportunity for a bespoke brand in the private travel market, and Flexjet with its enhanced fleet can fill that void,” Kenn Ricci, principal at Directional Aviation, said in a separate statement. “Flexjet will remain a leading Bombardier customer and manager of the world’s largest collection of the manufacturer’s business aircraft.”