Forget Airbus, Boeing stocks: Embraer and Bombardier are cruising

Airbus (AIR) and Boeing (NYSE: BA) stocks are the best-known in the aircraft manufacturing industry, where they dominate. The two companies brought in over $72 billion and $77.8 billion in annual revenue in 2023. They also sit on a backlog of over 8,000 and 5,400 planes, respectively.

Airbus and Boeing can, therefore, be seen as a duopoly in the commercial aviation industry. However, there are other top names that many retail investors often overlook: Embraer and Bombardier. 

The chart below shows that Embraer and Bombardier stocks have done better than Boeing and Airbus this year. The two are up by over 70% while Boeing is down by 30% and Airbus is barely moved.

This outperformance goes from way back. In the last five years, Boeing stock has collapsed by over 50% while Airbus has risen by 20%. Bombardier and Embraer have jumped by 130% and 95%, respectively.

Embraer business is doing well

Embraer is a Brazilian company focusing on commercial aviation, executive jets, and defense & security. While its brand is not all that well-known, the firm has sold thousands of planes in the last decades. 

It sells most of its commercial planes to companies with regional operations. Some of its top customers are companies like American Airlines, Republic Airlines, Skywest, Horizon Air, and Azorra. 

The company, unlike Boeing, is known for its safety and its planes have not been involved in major accidents in the past few years. However, like Boeing and Airbus, it has also gone through substantial supply chain issues that have affected its growth.

The most recent results showed that Embraer has a backlog of over $21.1 billion, the highest it has been in over seven years. It delivered 45 executive jets in the first half of the year, up from 38 in the same period in 2023. It expects that its executive deliveries will be between 125 and 135. 

Embraer also delivered 24 commercial aviation planes in the first half and expects to sell between 72 and 80 planes this year. 

With Airbus and Boeing operating at capacity and with their backlogs extending to years, some airlines have turned to Embraer. As a result, its commercial aviation backlog rose by 40% to $11.3 billion while its executive jets jumped by 8% to $4.6 billion. Its defense business was the main laggard during the quarter.

Embraer also makes a lot of money servicing its customer airplanes. Its services and support segment had a backlog of over $3.1 billion. This is a unique business since its aircraft customers use it as its preferred company for doing regular maintenance. As we have seen with Rolls-Royce Holdings, doing this maintenance can be a big business.

Embraer has been a highly conservative company, which has helped it have a good balance sheet. It has over $1.2 billion in cash and short-term investments against long-term debt of over $2.5 billion. 

Embraer is also positioned well geopolitically. It is a Brazilian company, meaning that it is not significantly exposed to geopolitical tensions between western countries and Beijing. However, the main risk is that, as a Brazilian company, it has an exposure to the Brazilian real. A strong real can lead to lower sales.

Bombardier

Bombardier is another airline stock that is doing better than Boeing and Airbus. Its performance means that the company has done well after it went through a tough restructuring process that saved it from bankruptcy. 

As part of its restructuring process, Bombardier exited the commercial aviation and train businesses and sold its stake in the A220 business. At the time, the company had over $10 billion in debt and had to be bailed out by the Quebec government in 2016 and the federal government in 2017. 

Today’s Bombardier is a different company than the one that existed a few years ago. After shedding most of its commercial business, it is now a leaner organisation that focuses primarily on private jets, a market segment that is still growing. 

The Global 8000 plane has a range of over 14,000 and can carry 19 passengers. While it is a small plane, this range is almost similar to that of Airbus A380, the biggest commercial plane with 4 engines. 

The most recent results shows that Bombardier’s revenues rose by 32% last quarter to $2.2 billion while the adjusted EBITDA rose by 22% to 335 million. It also grew its net income to $19 million. 

Bombardier’s business is doing well as its backlog jumped to over $14.9 billion. It delivered 39 planes in the second quarter. It also has a stronger balance sheet, with over $1.3 billion in available liquidity against long-term debt of over $5 billion.

By focusing on the private jet or business jet market, the company has refined its mission and will likely be more profitable. Besides, unlike in the commercial aviation segment, it does not need to invest billions in new programs. 

The key risk is that demand for private jets may cool as buyers remain wary of attacks by climate activists.