Emerging Markets Potential for This Aerospace Manufacturer
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The airplanes that grab the attention of the public and investors are usually the ones with the newest creature comforts, dramatically reduced fuel consumption, and the most impressive appearance. This attraction to the latest in the industry is what has made events like the Paris Air Show so popular. It is also what has driven investor interest behind Boeing’s (NYSE: BA) composite 787 and the development of the largest passenger jet ever, the A380 manufactured by Airbus, a subsidiary of European Aeronautic Defense and Space Company (NASDAQOTH: EADSY.PK). But another aircraft manufacturer sees potential for its existing offerings in emerging markets and is working hard to gain ground in Africa.
A growing air travel market
Canadian transportation company Bombardier (TSX: BBD.A) (TSX: BBD.B) proudly states that it is the only transportation company making both trains and planes. While the trains segment is a major part of Bombardier, the company sees major emerging markets growth potential in its aerospace division.
Bombardier has spent over $3 billion and several years to develop a state of the art narrowbody plane to compete with Boeing and Airbus in the 110-160 passenger segment. While the new plane, called the C Series, is going to be very important to Bombardier’s future, its growth in Africa is expected to be driven by existing offerings in the regional jet and turboprop segments with the C Series making up a smaller part of sales.
Talking to Aviationweek, Bombardier’s senior vice president of sales and marketing Chet Fuller says that Africa is “exactly the kind of market the Q400 was built for.” But besides Bombardier’s Q400 turboprop, Fuller also says that there is demand for the C Series and that Africa is making a “great second home for used CRJ-200s.” Followers of the airline industry may have noticed the movement away from the 50 seat aircraft (like the CRJ-200) and toward larger regional jets like the CRJ-700 or even to Boeing 717s as Delta Air Lines chose to do. As a result, the market for CRJ-200s is filling up with used jets, however increasing demand from Africa may help airlines to get better prices for their CRJ-200s.
Despite this movement away from small regional jets, Bombardier can still find customers for its Q400 turboprops, just recently delivering one to Canadian airline WestJet. With the Q400 seeing growing demand in Africa, Bombardier will be able to capitalize on sales from both developed markets and emerging markets for its Q400 series.
In selling to Africa, airlines appear to have the most demand for smaller aircraft, and Bombardier can supply a broad range of these planes. With Boeing's smallest plane being the 737 and Airbus’ being the A318, both of the largest aircraft manufacturers miss out on much of Africa’s passenger aircraft demand. This is not to say that no Boeing or Airbus aircraft are sold, but the cost of large planes and the demand to fill them is often beyond the reach of many African carriers. As the African air travel market grows, larger planes will probably sell in greater numbers, but in the meantime Bombardier is able to establish relationships with carriers and sell carriers aircraft from the Q400 turboprops to the 160 passenger C Series model, the CS300.
But Boeing and Airbus are not just going to surrender Africa to Bombardier. Both of the large manufacturers see the potential in Africa and are selling planes to larger and better financed African airlines. As Africa grows as an air travel market over the coming decades, all aircraft manufacturers should benefit, but Bombardier’s combination of both turboprop and moderate sized jet offerings could attract many carriers to the Bombardier brand during their growth stage. When I purchased my Bombardier shares I mostly did so as a bet on the C Series, but the potential in the African market helps to strengthen my initial bullishness on Bombardier.
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Alexander MacLennan owns shares of Bombardier. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!