Bombardier, Inc. (TSE:BBD.B) is a leading manufacturer of regional and business jets based in Canada. The company is very optimistic about its upcoming passenger jet in the CSeries family which is yet to make its first flight. However, it has a tough task ahead entering in the narrow-body market which has always been dominated by Boeing and Airbus with their flagship models – Boeing’s 737 and Airbus’ 319 and 320. The company claims that its CSeries aircraft is made up of lighter materials and an advanced engine which makes the aircraft quieter and more fuel efficient that has the potential to compete with the best in class.
Who’s the best to invest in?
Boeing and Airbus have always had a duopoly in the industry. Even though Boeing had been ahead of Airbus in the past, Airbus seems to have turned the tables. Learning their lessons from the experience of A380 as well as the problems faced by Boeing in its Dreamliner project, Airbus has taken a very cautious approach with A350 which might go in its favor. Bombardier, Inc. (TSE:BBD.B) is not expected to pose a threat in the segment for both the big players. The company failed to get any orders for its Cseries aircraft at the Paris Airshow.
Lets do a relative valuation of the three players. We have included European Aeronautic Defence and Space Company (NASDAQOTH:EADSY), the parent company of Airbus as its proxy for valuation purpose.
| Company | Trailing Price-to-Earnings Ratio | Forward Price-to-Earnings Ratio | Total Enterprise Value to LTM Revenue | Total Enterprise Value to LTM EBITDA |
|---|---|---|---|---|
| Boeing | 14.15x | 10.32x | 0.64x | 9.76x |
| EADS | 26.39x | 14.95x | 0.55x | 7.23x |
| Bombardier Inc | 19.53x | 16.33x | 0.94x | 9.80x |
On a trailing P/E ratio basis, Boeing appears to be the cheapest of all. The company is trading at 14.15 times earnings. The investors seem to be optimistic about the performance of the Dreamliner. Airbus on the other hand is struggling with the performance of its A380 aircraft and appears overvalued on the basis of the multiple. Like the company, the investors are taking a cautious approach as well.
Airbus seems to be cheaper in terms of the Enterprise Value multiples trailing at a LTM Revenue multiple of 0.55 and EBITDA multiple of 7.23.
The Foolish bottom line
The aviation sector is getting ready to witness an interesting battle between long time rivals Boeing and Airbus. As the Dreamliner struggles to keep its wings in the sky, Airbus is playing smart in launching its new baby the A350. The company been proactive in the development of the new aircraft and has also taken feedback from the mistakes committed by Boeing – the battery fiasco.
Even though Boeing appears to be cheaper it does not mean its a buy. The markets are yet to recognize the synergies of A350 which means its a good time to invest in Airbus. In my opinion, Boeing will have tough times ahead and the the Foolish investors should avoid boarding the US giant as the stocks may nosedive when the Airbus would force it to switch off its auto pilot.
Nikita Bajaj has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Nikita is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Will Airbus Turn Boeing’s Dreamliner Into a Nightmare? originally appeared on Fool.com is written by Nikita Bajaj.
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