2026.09.24 | GP | Aerospace | Bombardier Supply Chain Outlook

Trade Risks

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Associated:

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GE

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EMBR3:BZ

TXT

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Viewpoint:

Former Executive

Moderator: Jake Miller (JM)

| Sep 23, 2026 | 40 Min Read

Christopher Debergh (CD), Former VP and GM of Aftermarket OEM Parts and Services - Bombardier

SU MMARY

Overview

The discussion centers around Bombardier, a major player in the aerospace industry, focusing on trade issues, market dynamics, and strategic challenges. The expert provides insights into Bombardier's operations, particularly its aftermarket services and the impact of potential trade tariffs on its business.

Key Insights

The expert highlights the potential risk of trade tariffs affecting Bombardier's operations, particularly in the US market, which constitutes a significant portion of their sales. The possibility of tariffs on non-US content could significantly impact Bombardier's margins and customer decisions. Bombardier's strategy to reclaim aftermarket service share from third parties has been successful, but future growth may be limited as the market matures. The expert suggests that Bombardier's financial constraints limit its ability to engage in significant mergers and acquisitions, which could hinder its competitive positioning in the long term.

Competitive Landscape

Company

Market Positioning

Recent Moves and Challenges

Bombardier

Strong in aftermarket services but faces potential tariff risks in the US market.

Limited financial flexibility for major M&A; reliant on existing platforms.

Gulfstream

Higher aftermarket share compared to Bombardier.

Strong global service network; less impacted by trade issues.

Textron

Competing in the super mid-sized market.

Similar challenges as Bombardier but with a broader product range.

Embraer

Increasing share in fleet operators.

Competes in the super mid-sized market; potential growth in defense sales.

Dassault

Competes in defense and business aviation.

Strong presence in France; less exposure to US trade issues.

Quantitative Insights

Metric

Insight

Revenue Growth

Expected to grow at 4-6% annually, contingent on market conditions.

EBITDA Margins

Slight potential increase, but largely stable.

Aftermarket Share

Bombardier claims 50% share; questions remain on the composition of this figure.

Debt Levels

High debt relative to revenue limits financial flexibility.

Conclusion

Bombardier faces significant challenges due to potential US trade tariffs and financial constraints that limit its strategic options. While its aftermarket services have grown, future expansion may be constrained by market maturity and competitive pressures. The company's ability to navigate these challenges will be crucial for maintaining its market position.

JM: Hello, everyone. My name is Jake Miller. I'm an industrials analyst with Guidepoint, and I want to welcome you to our teleconference on Bombardier with Christopher Debergh. If you have any questions for the advisor, feel free to email ask@guidepoint.com. Again, the email address is ask@guidepoint.com. All questions will be anonymous. We should have time to get to any questions you may have. Before we begin, I want to introduce our advisor for today. Chris, if you'd like to give us a little background on yourself, that'd be great, and we can get started.

CD: Sure. Welcome, everyone. Thank you for getting together today. My background is a long background in mostly industrial businesses, supply chain, running spare parts businesses aftermarket, OEM, manufacturing, customer direct. I've worked in companies like Lennox Industries where I ran their aftermarket, Danaher. I worked for McKinsey for a while, eventually went into aerospace where I joined Bombardier in 2017 as their head of MRO, which is maintenance, repair, and overhaul, and parts business. In 2019, I was promoted to the vice president and general manager of their aftermarket MRO and spare parts business, which is roughly 95% of the revenue in the aftermarket business of Bombardier. Left in 2023. Since then, I've been doing primarily consulting and advisory work for private equity firms and others, investment firms, what have you, looking at this space. So that's my background.

JM: Awesome. So maybe we can kick it off just talking about some of the recent trade issues here. Trump's tweet a couple of weeks back talked about a quote ban on Bombardier, which immediately got a lot of pushback from various areas and didn't elicit much of a reaction to the shares. I assume a ban isn't feasible either from a legal or business angle. Is that correct?

CD: I mean, they can do anything they want until it goes into the courts and the courts throw it out. So, they technically could do a ban. I'm not sure if you're banning jets or you're banning parts or what exactly was being banned. I think the more likely scenario would be as USMCA falls apart, you end up with some form of tariffs that gets applied to Bombardier's products. And then the question is, is it going to be on the value of the import or is it going to be on the value of the Canadian content of the import, which is how USMCA works today. So, it'll really depend. And that difference... that slight, what sounds like a slight difference... is actually makes a big deal.

JM: Yeah, so let's unpack that a little bit. You know, I'm not an expert on these trade issues, but the current framework for US and Canadian trade would have to fall apart for these type of particular tariffs to be placed. Is that right?

CD: Well, so under the USMCA and the Canadian agreements with the US, that agreement has only been extended for a very short period of time. I think they're still in negotiation, so it's kind of extending, sort of. But that agreement right now, if they don't come up with a new one, is up for negotiation on an annual basis. So that's the first thing you have a problem with, because it's really hard to do investments if you only have visibility into 1 year out. The other thing that happens is because they don't really have an agreement in place, they're just kind of still using it. I think it's open to kind of anything that the US wants to do at this point, because neither Canada nor the US can fall back and say there's an agreement that's in force that you have to follow because that agreement has not been... that agreement was required to be ratified in, I want to say, June-July time frame, and that has not happened. So this is why you're seeing these tit-for-tat tariffs going back and forth. Much of the stuff that's been... some of the stuff that's been put on is already in violation of the original USMCA agreement. So it's kind of like there's an agreement, which I'll call more like a guidepost, but nothing stops either country from going outside the lines, so to speak.

JM: And can you talk about the distinction you're making between the value of the import and the value of the Canadian content? Why is that important and what would that mean?

CD: Yeah, so if you look at Bombardier's aircraft coming in, the engines are, for most of the airplanes, made in the US, the avionics are made in the US, in the case of the Globals, the landing gear is made in the US. The wings are made in the US, so you're really looking at a product where better than 50% to 60% of the value of that product is US content. Now, historically, the way this has always worked... is when you import a good, you import it at the value, but then there's a thing called a duty drawback. You can draw back those duties once you've proven that you used US content material in it. However, that doesn't apply to all countries, and without a treaty in place and an agreement in place, then it would be. You know, it just depends on what the US and or Canada chooses to do. You've got the same issue in automotive, right? Those parts are going back and forth. So like an engine block gets made in Windsor, it goes to Detroit, it gets partially assembled, other components, and then it goes back to Windsor; it goes back and forth between Canada and the US. One of the challenges they've had, even with the tariffs on the existing automotive that's been put in place, is determining how much of it... what content comes from the US from the 3 parties, US, Canada, Mexico, you figure it out. It's a huge administrative problem. But I've not seen where the US has just said, we're hitting you with tariffs on 100% of the value, although that's what he threatened in automotive. Yeah, and some of the pushback to Trump's initial statement were from these communities that do supply significant content on these aircraft.

JM: Again, anything could happen, but do you have a sense of how much sway, how much clout these communities and the representatives have to shape policy here?

CD: So, yeah, sure. So you figure, take a Global, for instance, right? The engines are coming, or the new 7500, the engines are coming from GE, produced in the US. The avionics are coming from... I forget, I can't remember if it's Rockwell or someone like that, but again, produced in the US. So their argument to the Trump administration is going to be, you know, we're effectively going to have to lay people off in the US because you're cutting off products coming in. That'll be their argument because that same company may or may not supply Gulfstream or Textron, who are competitors and are assembled in the US. I think, so that may hold sway. I think the bigger pushback that the administration is going to see is going to be from owners of aircraft or potential buyers of aircraft because those are the same people who are also donors. So if you're a billionaire and you've paid for 70% of your airplane and it's about to get imported and suddenly you find out you can't because there's a ban or there's a 50% tariff or whatever happens, I mean, I have to believe that your next call is going to be to Washington with, you know, what are you doing? Do you want me to just take my donation and put it over here instead? So you got to think of who buys these and it's not, you know, I'm not the person who's buying it. It's people who can afford to buy a $30 to $50 million jet. I mean, that doesn't mean, having said that, that doesn't mean that there's still... this is why I think the more likely scenario is not a ban, is going to be a tariff that gets added to the value of the content, in which case the

administration's answer is going to be, well, just tell them to assemble it in the US, or, well, there's 2 US manufacturers you can buy a complimentary product from. Well, you can buy one from Gulfstream or you can buy them from Textron. Go buy it from them instead is going to be their answer.

JM: You know, that's a good point. And I guess if there were a tariff, who knows what it looks like, but maybe not, maybe a more realistic case, not a worst case scenario. How detrimental would that be to Bombardier's business?

CD: So let's take the lowest form of import restriction, which would be a tariff on the non-US content only. So now you're talking, let's just for rough math, say you're talking about 50% of the value of the airplane sold. If the tariff was 10% on 50%, then that's effectively a 5% hit. Either the customer is going to have to pay 5% more or Bombardier is going to have to eat 5%. Again, you're dealing with very, very sophisticated customers. So the fact that customers would be signing deals now, leaving themselves wide open to any kind of trade problem, I find shocking. It's possible Bombardier has some form of insurance to cover that. More than likely, what's going to happen is the customer is going to say, no, no, no, I agreed to $30 million. That's what I'm going to give you. The fact that there's a tariff is you're eating it. And there's going to be a big battle between the two and they'll split it. That's at a 10% tariff. You know, he's talking about automotive. The administration is talking about automotive tariffs of 50%. So if you put a 50% tariff on 50% of the value of a new jet coming into the US, you've more than wiped out Bombardier's entire aircraft margin on that plane. More than. I mean, aircraft margins are only 9% to 10%. So one of two things happens. If Bombardier has to eat it, they're basically going to sell everything at a loss into the US, which is roughly 50% of their business at a 50% tariff. And if the customer is going to have to eat it, customers are probably going to just not buy Bombardier jets because I can get a complimentary Gulfstream or Textron or I'll go buy a used one.

JM: Got it. And are there other markets that could offset the US? I understand that the US is the largest market here. But given that deliveries are challenged and lead times are pretty long here, is there, I mean, could they shift sales outside the US?

CD: Well, I think that's already happening. 50% of business aircraft sales happen in the US. So it's a big, big chunk of the market that just suddenly evaporates. I mean, when the Russian sanctions came on, Russia was less than 7%, 8% of the market, and everybody felt it. It was a big problem for all the manufacturers. So if you lose, I don't know what business can lose 50% of their market overnight and suddenly, you know, be fine. There's no other market that's going to pick up that kind of slack, not for Bombardier. Remember, Gulfstream, Textron also sell internationally as well, as does Embraer and Dassault.

JM: Got it. So I guess just wrapping up discussion so far, of course, no one knows what's going to happen. It seems like these things can change every day, but you do see this as a real risk here in the near-intermediate term potential. Is that fair?

CD: Wow, you know, if I was that clairvoyant, I'd be doing something else. Yeah, I mean, I don't know, maybe it becomes an agreement next week. I think the best way to look at this is what's Bombardier? So, you know, what's the chance that this happens, which is each individual has to make that assessment, and then what's Bombardier's solution set to offset it? So one thing they could do is they could start to assemble in the US, and then how long does that take? Well, they moved their Toronto plant, which took 2.5 to 3 years before it got fully operational. So they could do things like we'll do final completions in the US, which they've done before. And they have the service network. The service network can do some final completion work. So they could pivot with some assets in order to deliver jets, continue to deliver while they basically set up an assembly plant in the US to go produce. That's not going to be super efficient at the end of the day, but it's better than having a big share loss. So that would be one alternative thing they could do. The other thing is, I mean, I think what their game plan right now is they're just saying, we don't think this is going to happen. The other thing you have with a ban, one last thing with a ban. Here's the other problem you have with a ban. So are you banning planes or are you banning everything? If you ban everything coming from

Bombardier, you effectively shut the Bombardier US fleet down, which is probably 2,000 plus jets. So, you know, a third of NetJets' fleet, a quarter of Flexjet's fleet, most of VistaJet's fleet would suddenly cease flying. Because if you can't get parts or service for those, you can't get parts for those planes, the FAA is not going to let you fly. So it's going to be, that's why I think a total ban is nonsense. I don't see that happening. The implication of that is dramatic.

JM: Go ahead. You've seen some recent sales of the Saab GlobalEye platform, which I believe is based on the Bombardier 6500, both in Canada and the EU. It looks like, you know, these type of countries are trying to diversify away from the US as a military supplier. So do you see potential for Bombardier to benefit from additional GlobalEye sales? Could this take some of the capacity if the US market slows down?

CD: It would not. There's not enough to cover what you lose in US sales. Just to give you a little bit of background, Bombardier has been selling aircraft to military customers for decades, and it started with Learjet. In fact, the Globals, I think it's... I can't remember if it's a 55 or 65... actually have 2 programs in the US. They supply the BACN program for the US Army and the HADES program, which I think is the follow on to the BACN. Those aircraft have been, you know, long before Bombardier had a defense business, they were selling those airplanes and providing integration services in order for Northrop Grumman and others to install surveillance equipment, surveillance and communication. Which is, everybody thinks of Saab as the automotive company; they're actually an aerospace and defense company that just happened to make cars. They supplied those jets to Saab several years ago, long before Bombardier had a defense business. The other possible countries would be France, Dassault is based in France, so it's highly unlikely Bombardier is going to sell airplanes for defense use in France. It's unlikely unless they sell it through Saab. It's unlikely they'd do it through Germany unless it went through Saab. Lufthansa does the upgrades there; I can't remember the airplane they use. Middle East is another potential customer and Asia is a potential customer. But basically, the way the sales are gonna work is it's gonna be the prime contractors, Saab, Northrop Grumman, Lockheed Martin, Boeing, Airbus, all have defense businesses and all sell defense platforms. And they sell fully integrated solutions. They're going to be selling to those countries all over the world. Bombardier is a... I'll call them... a tier 1 supplier to Northrop Grumman and Saab for the Saab program and the Northrop Grumman program. That's how it works. The real question is, how many of these communication and battlefield surveillance systems are going to be sold through either NATO or through the Middle East or through Asia, and who's likely to be the winner? And if the winners are going to be Saab and or Northrop Grumman, then you'll be using Bombardier airplanes for that.

JM: And is there a significant difference on the margin to Bombardier if they sell a plane to Saab or Northrop Grumman versus selling it to an individual business purchaser?

CD: On the base plane, no. In fact, there might be less margin just because you're dealing with government procurement organizations and sometimes they're pretty shrewd, especially on big assets. However, the difference is there's a significant amount of engineering work that has to be done. Not only from the prime contractor like a Northrop Grumman, but also from Bombardier because Bombardier has the engineering of the aircraft itself. So the airplane needs to be modified, and the minute you start modifying the airplane for things like antennas, as an example, or you change the weight of the aircraft or anything like that, that all requires additional engineering work. So the Bombardier contracts are really 2 components. There's the sale of the airplane and then there's the engineering services that go along with that. Historically, the way it worked was before Bombardier had a defense business, the aircraft sales team sold the airplanes to whomever and happened to be Northrop Grumman or the US Army. And it's actually, I can't remember which one it is. It's 1 of the 2, as an example. But then the engineering organization, which was a separate organization, actually provided engineering services. What they did is they sort of rolled that all up under a single P&L.

JM: Got it. And the Canadian government has been pretty public talking about creating some independence here on the defense and aerospace side, they're in a pretty public process right now debating replacing some of the planned F-35 purchases with Saab Gripens. I guess if there were a significant order for Gripens and some of this work is done

in Canada, would Bombardier likely get a piece of that? I believe that was part of this potential deal. What could that look like? How could Bombardier participate there?

CD: I mean, Bombardier is primarily an airframer. They're an assembler. They sold off most of their structures businesses to Spirit. They make some components and some interior components. So if you look at the facility in Montreal that does the Globals, they're creating seats and making brackets and that kind of stuff. So they do some structural components, but a lot of the stuff that Bombardier does has actually been outsourced. So they're more like an airframer than they are a component manufacturer. There are component manufacturers, however, in Canada, and there's many of them, like landing gears for the Challenger come out of the Toronto area, as an example. Pratt & Whitney's based there. Rolls-Royce has a big operation there. So there's a lot of other component manufacturers in Canada. So my suspicion, I'm not saying Bombardier is not going to get anything from components made on the Gripen, but that's really not in their wheelhouse. But they certainly would be welcome to bid on it and could potentially win some. But my take is on their total P&L, I'd be shocked if it actually moved the needle at all. It's probably really good press, but maybe it's $10 million, $20 million, $30 million in sales. It really doesn't amount to much.

JM: And if these trade issues escalate, how hard would it be for Northrop and the US military to move away from Bombardier, the supplier? Would that be a difficult process or could that be done?

CD: No, that would be significant, because it's not just the airframe and the weapon systems. The airplane is actually a small component of that overall program. So what BACN does, what BACN and HADES does, is it is the central communications hub between all of the branches of the US military that allow within a theater them all to work together, communicate together, and pass information across and send battlefield commands back and forth. That all then streams up through the BACN aircraft. It just happens to be on a Bombardier 6500. Northrop Grumman has, I mean, Lockheed Martin provides airplanes for this, as does Embraer, as you know Embraer has a deal with the Israelis, I believe, to do a similar thing. Bombardier has one with Saab out of Sweden. And then you've got Dassault, because Dassault also provides fighter jets as well. So Dassault also has the same type of capability with France.

JM: Got it. I guess thinking about the supply chains here and production rates for all the business aviation guys are somewhat challenged. Is there a way that, other than the US-Canada issues we were just discussing, is there a way that Bombardier's supply chain is different versus their primary competitors and does that put them in any better or worse competitive position today?

CD: They're all going to have basically the same problems. A lot of the suppliers overlap between the various manufacturers, the various OEMs. So when Honeywell has a problem, and it's big enough or a shortage, it's going to impact not just Bombardier, it's going to impact other manufacturers as well. Same with Collins. The tier one level of that industry is pretty heavily consolidated. One of the risks, supply chain risks, is that underlying tier one, tier two has been heavily consolidated in the last 20 years. And so it's really hard, they supply all the manufacturers, not just business aviation.

JM: Got it. Yeah. You mentioned Honeywell, and they've had some pretty public and recent supply chain issues. Honeywell is a supplier to Bombardier and their competitors, but at least in some of the Honeywell Aerospace disclosures, they highlight the relationship with Bombardier specifically. Do they have any more content exposure to Honeywell than competitors, and is that a potential risk given the issues that companies experience?

CD: You really have to look at component by component, but I'd say, Rob, like right now Honeywell's main supply to Bombardier is the engines and APUs on the 3500. That's the main product lines that Honeywell has. And they provide, they're not... I don't believe they're on the 7,500 at all, but Honeywell does have other manufacturers as well. That engine is a pretty common engine used across multiple platforms, as well as they provide products to Boeing and

Airbus as well. What you find at the Tier 1, Tier 2 suppliers is they don't really have, like business aircraft is usually a small part of their business. General aviation is a small part. This became very, very clear in COVID. So if you want, I can describe like what happened very quickly. So when COVID hit, the commercial airlines basically shut down globally. And that rippled through, which meant you didn't need repair components, you didn't need all the services that you historically did. That started to ripple through the Tier 1s and Tier 2s who provide those components up through. So in the case of major Tier 1s, their answer to us was, yeah, 90% of my business is just evaporated overnight. We're laying everybody off. What happened in COVID is business aviation continued and actually picked up. There's about a 10% to 12% pickup in business aviation spare parts needs. And Tier 1s were caught flat-footed because they just assumed the whole industry was going to go, was going to crater like the commercial side did. And so they were, because their businesses were so heavily geared towards commercial, they basically shut down entire factories. And that created the first major problem. Then when aviation, commercial aviation picked back up, Boeing and Boeing aircraft, or more importantly, like the big airlines... so if you're a Delta or United or American or Lufthansa... you got a lot of pull with the Tier 1s. So they had to keep those customers super, super happy. And business aviation took a little bit of a backseat because maybe you're talking about Boeing with a 10,000 to 15,000 fleet that you're on, and we'll be right back. versus a business aviation who's maybe the fleet's 1,000 and maybe you're producing 50 a year.

JM: Maybe we can turn to the services side. Bombardier's been seeing some pretty decent growth in their services business over the last several years. And my understanding is that at least some of this is due to an intentional strategy to take back some share of the aftermarket that maybe they ceded to third parties in the past. Can you talk about this strategy and how successful it's been?

CD: Sure. In fact, yeah. So that strategy started in roughly 2016. The goal, Bombardier was actually relative to Textron, if you sort of benchmark them against Textron and Gulfstream, Bombardier had far less of the aftermarket market share, both in spare parts and in MRO services than either one of those manufacturers. If you go way back in history, so as general aviation first started out, it didn't make sense to have a global distribution network and MRO sites around the world because there just wasn't that many planes. So they set up what they called authorized service facilities. These are, you know, they provide training, they provide engineering services, the OEM does, and then those service facilities would serve multiple aircraft simply because you couldn't get scale by yourself. As time went on, Gulfstream acquired Jet Aviation, which gave them MROs around the world and Gulfstream continued to sort of, I'll call it, build out their service and spare parts distribution networks that allowed them to take more and more market share and they eliminated all of their authorized service facilities. Bombardier followed basically the same playbook. We started in 2016. 2017, 18, and 19 was when we did a massive expansion. So you can't really, like the spare parts and the MRO kind of go hand in hand. So it was an MRO expansion with spare parts supply and getting sort of control of the spare parts channels, so to speak, and then basically shifting share from the independent MROs and those MROs that used to be ASCs that are no longer to yourself. So customers in general aviation, it's fundamentally different than commercial. In general aviation, customers don't go in and say, here's the parts I bought, put them on my airplane. That's not how it works. They come in and say, my airplane needs to be fixed. Please tell me what parts I need and the MROs do the ordering for it. Rarely does a customer actually buy the parts themselves, unless it's a big fleet operator, even then they rarely do it. So by controlling, by being in the MRO position, you then become the primary orderer of parts for your customer. So that allowed the OEMs, because they were now in the MRO space, allowed them to channel the parts through their own MROs, which then just gave them greater power in the market and allowed them to also leverage the residual ASCs to also buy through their channels. That was kind of a strategy. That strategy was predominantly played out by 2023. For early 2024, there's been very few new facilities added on Bombardier's side. And so it's really just kind of overall, to me, there's sort of 3 things you see happening right now. There's organic growth. So the industry itself is growing at 4%ish, maybe 5%, 3 to 5% somewhere in there, depending on the platform. Then you also see price growth. So inflation, in that aftermarket business, it's relatively, I'm going to say easy, but how is it? Not particularly challenging to pass prices along. So to pass costs along to the end customer. So as commodity prices went up, as manufacturing prices went up, as whatever came along, those

prices are heavily passed along. So some of their growth is actually price increases, which is, you know, the result of cost increases. And then the third part of the growth, which is probably much more limited now, would be just taking those existing facilities that came online and just adding more technicians, more people to it, so you can just handle more volume at that. And that's kind of what's driving it forward, which is also kind of why you're seeing, so as the price increases have started to fall, as costs are, like if you think of cost increases in 2020, 2021, 22, you know, when inflation was running at 9%, those prices were, that was being passed along in price. Plus you had, you know, you have brand new facilities that were coming on, so it didn't exist before. Suddenly you have, you know, several hundred technicians coming on board at the same time. That drove volume in the MRO, which also channeled parts through Bombardier, and... that... so those 2 things, price is still a factor because inflation is not like really, really low, but it's nowhere near as high. But the sort of building brand new facilities and bringing them online, that's kind of played itself out, mostly, particularly in the international sector. And so what you see now is, you know, they added a new site in Indiana. Relative, compared to the other big sites around the globe, it's a relatively small site. So it's harder; it's becoming harder and harder for Bombardier to move the needle in their aftermarket. And the growth rate is actually, I mean, it's still extremely healthy. It's still in the high single to low double digits, but it's lower than it was back in the early 2020s.

JM: Got it. So I guess going forward, where is the growth rate for services? And given these issues we discussed, is it some function of, I guess, total flight hours plus some type of pricing on top of that? Is that the right way to think about it?

CD: There's only 3 drivers. There's flight hours, fleet age of the aircraft, and there's actually 4 things. So flight hours, age of the aircraft, pricing increases, and the fourth one is the health of the used market. So when the used market's really healthy, you have the aircraft changing hands. Often that tends to change hands at when major inspections are due. And customers at that point, the new owners, will often make the decision to do modifications and upgrades, which adds to the service revenue. So I guess what does that mean for growth rates going forward today?

JM: Got it. How would you kind of bracket the longer term outlook for each of those buckets?

CD: Well, I'm going to put... I think you're going to see aerospace inflation and growth, market growth, are going to hit an equilibrium, let's call it. This is going to be no real spikes up or down. That's sort of my 4% to 5% estimated growth rate. So then the question is, well, how do you grow that share more? Because it's really a share take after that. Who are you going to take share from? Well, eventually you reach a point where you've pretty much taken most of the share you can take. And the question for Bombardier is when does that occur? If you look at Gulfstream, Gulfstream will tell you. So Gulfstream's a little more explicit about where they sit. Now, Gulfstream will tell you that they're roughly... their estimate is they have 70% of the aftermarket services revenue as their share. Bombardier posts like 50%, but Gulfstream also tells you what's included in that. Bombardier is a little bit... not as transparent in what's included in that 50% number, if it includes. And so depending on what's in there, there could be more runway, so to speak, no pun intended. And the real question is, is Learjet included in that number or not in the 50%? Because Learjet is sort of a dying platform, so that platform is in decline. And although there's still a lot of airplanes, it's declining because nothing new has been added... of any kind of volume for almost a decade. So if the 50% number that Bombardier is quoting of their market share in aftermarket, if that's inclusive of the Learjet fleet, then there's a big tailwind dragging the whole thing backward. Whereas when the Gulfstream reports their 70% market share, they are not including... 30-year-old platforms that they don't make any... that they haven't made in a decade. If that makes sense. And I don't know the answer. That's a hypothetical question. I don't know the answer to that question. I don't know whether that 50% number is inclusive of the entire Bombardier fleet, which is about 5,500, or inclusive of only the Challenger and Global fleet, which is about 3,500. There's a big number difference. And I don't know what's in that 50% market share number. If it's only Challenger and Global, then yeah, they got a lot of room to take more share.

JM: And are there structural reasons why their share might be lower than peers or, you know, absent the issues with Learjet, if you were able to make this comparison on a comparable basis? It should eventually, with the right strategy and the right investment, they'd be able to get their share of their fears.

CD: Yeah, the answer is absolutely. There's no reason why they couldn't get to the same share. I think, let's put it this way. It's going to be a lot harder now than it was a decade ago. And the other thing that's happened is the MRO businesses have consolidated. So when you look at the independent, when you look at some of the global independent MROs, take West Star as an example. Well, West Star was maybe... West Star is private equity owned right now. They're on their second private equity firm. West Star, which is probably the second or third largest independent MRO in the US. They were maybe a tenth the size they are today. Even Duncan Aviation was much, much smaller. They're another very large MRO. So when Gulfstream and Textron was going through this, there were a lot of small MROs. So if you're a small kind of MRO with 40 to 50 technicians, you just pivot to do something else. But you can't pivot to Gulfstreams because most of that's been absorbed by Gulfstream. It's harder to do with Textron. And so the issue for Bombardier is the independents just aren't going to roll over because if they stop working on it, well, what are they going to go work on? And they're very large now. So what's more likely to happen is Bombardier doesn't do the, all of that doesn't... I don't know if Bombardier is going to be able to put West Star... take a big dent out of West Star. That doesn't mean they can't sell them parts and engineering services, but the strategy of have the MRO so you can control the channel is much more difficult now than it was a decade ago.

JM: In thinking about new business jet sales, the supply-demand balance here seems like it's been in the OEM's favor for the last few years. I guess, absent a significant downturn in the overall economy, do you see this continuing or should it level out and what does that mean for pricing and margins on new aircraft sales?

CD: Yeah, so when it comes to new aircraft sales, prior to COVID, their backlog was between 9 and 12 months, relatively small. It's only been through COVID. And what you really saw, if you want to kind of watch that side of the market, I call it the canary in the coal mine, is used aircraft sales. When used aircraft become very, very rare, like start dropping to the 2%, 3%, 4% of the fleet is up for sale, that usually means the only place you're going to get an airplane is to buy a new one. So that has kind of lifted the backlog because used aircrafts were sitting in the 2% to 3% and customers were buying in 21, 22, they were buying airplanes out of China sight unseen. You know, things were being flipped through the Justice Department out of Russia. Nobody had ever seen the airplane and they were buying it because there was just such a high demand for them. During that time, all of the OEMs built their backlog up significantly. And then it's leveled out... it's not continuing to grow. So I'd say there's sort of this equilibrium now that what the industry learned from the 2007-2008 financial crisis was not coming into these economic downturns without a hefty backlog is really, really problematic. They found the same thing in 2001. And so I think the industry, what the industry did in 2005, 2006, going into 2007, is they ramped up capacity because they thought there was this huge, massive demand that was unfolding, when in reality it was a spike in demand that was going to go away, and then they were stuck with all this capacity post-2008-2009 financial crisis and had to go through some fairly painful times to right-size their businesses. I think they've approached this much smarter this time, and so they're adding a little bit of incremental with really looking at... once you start getting more than 2 years, customers start to lose interest in waiting that long. 2 years is a long time to wait. And so what you tend to see is they're sort of producing at a rate that kind keeps that backlog. And then if there is even a small downturn in sales, they're pretty much live through the cycle. So I think the good news for not only Bombardier, but for all of the major players, is the next... barring another major financial problem like we had in 08-09, most economic downturns, they'll just eat into that backlog and it'll just be... by the time they get down to an unhealthy backlog, say sub-9 months, the economy will likely already be turning around. They might have to make some tweaks, but it's not going to be like these dramatic, painful adjustments. They can slowly start ramping down as the economy ramps down versus having to just stop building stuff.

JM: Got it. And does it get to a point or when does it get to a point that Bombardier needs to develop a new platform

here and how expensive and disruptive will that be?

CD: Yeah, so a new platform, more than likely, you know, they've talked about a replacement for the 650. That's a really old airplane. They did an upgrade. They've done more upgrades. It's not unique to Bombardier. Textron's done this. Gulfstream's come out with a new platform, but even Gulfstream will tell you their strategy is to take the existing platforms and modify them to the new platforms. The 7500 is probably the last major new platform that has hit the market. Maybe the latest Praetor out of Embraer and they're really expensive. I think Bombardier said that, you know, it was somewhere around $4 to $4.5 billion to develop the 7500, which was a clean sheet aircraft. So Bombardier's problem, I think, over the next several years, it's not going to happen all at once, is you've got the likes of Textron and Embraer looking to eat into that super mid-sized market, basically the Challenger market, and Bombardier is defending that market with 20, 25, 30-year-old designs. And Gulfstream's products, that super mid-sized is, you know, the decent market for Gulfstream as well. But I think Embraer, and you see it in the fleet operators, so where Embraer was non-existent in fleet 5, 6 years ago, they're increasing their share in the fleet operators. Textron as well, as the Longitude and Latitude. Now the benefit that Bombardier has is the 3500 and the 650 is a wider airplane. It's wider by 6 or 8 inches, I think, which doesn't sound like very much, but it makes a huge difference when you're sitting inside of it. So I think they've got this really sort of interesting niche that the others don't because of the width of the aircraft. But that's not going to last forever. And my view is Bombardier's challenge is where do you come up with $4 to $5 billion for a new platform or a major upgrade?

JM: Got it.

CD: Even 2 or 3, if you just tried to upgrade the 650, there's some technical challenges to that. But even then, you're talking like a couple of billion dollars. And I'm not sure Bombardier has the financial depth to be able to absorb that, at least not now.

JM: Bombardier hasn't been active in M&A, unlike much of the broader aerospace and defense industry. Why is that? Do you see that changing and are there areas where acquisitions could make sense here?

CD: It's the same problem as the... I mean, they've done some M&A, but they're really small deals. $10 million, $20 million deals. Bombardier's problem is they just simply don't have the balance sheet to take on billion-dollar deals. Their main issue continues to be, with the exception of the last 6 to 12 months. They started 2020 when they shed off rail and all those other divisions, they were sitting on $7 billion in debt. 5 years later, they're sitting on $4 billion in debt. So you got $4 billion in debt for a $5 billion company with a margin sitting somewhere around 8%, 9% on average, maybe 10%, 12% at the tops. And nobody in the industry is doing better than that. So they just got a boatload of debt that they've got to work down before they can take anything on like that. And then the corporate structure, the way the shares are structured, it limits sort of share deals. Share deals are much more problematic because the shares aren't clean and easily they use as a currency. So they're really sort of faced with taking on debt. And, you know, if they took on a big chunk of debt and there was a downturn, they'd be in serious financial trouble. They just simply don't create enough cash flow as a business or historically, at least in the last 4 or 5 years, haven't created enough cash flow to really even contemplate any kind of major deal.

JM: Got it. I guess just looking at consensus estimates for the next few years, analysts have revenue growing about 6% per year with EBITDA margins increasing slightly on that, maybe about 0.5% per year. I guess absent any of the potential significant risk on tariffs that we discussed, does that look broadly right to you? How would you directionally try to frame the upside or downside risk to those numbers?

CD: Yeah, I think the EBIT margins are kind of where they're going to be. I think, you know, for a slight increase in EBIT margins, maybe that happens, maybe it doesn't, but that'll depend from quarter to quarter, depending on what's going on. The 6% overall growth rate is probably on the high end of the industry so for them to grow at 6% they're

going to have to take share, probably not a lot, definitely a little bit. They've got some good products right now so they could do some things right now and I'd probably put it more, if I was to guess, I would put it slightly less than 6%, more in that 4 to 6% would be my upper end, let's put it that way, not the mid or not the low. So that's if demand stays healthy, wealth generation stays healthy, which is a function, you know, the function of demand is wealth generation. So as long as wealth generation continues throughout the world, that will continue to drive demand for private aviation, which will drive the overall market, which certainly will then support that 6% growth. If anything happens, whether it's tariffs, geopolitical, whatever, it could be anything... comes along that limits that economic growth, high net worth economic growth, then that 6% becomes at risk.

JM: Well, listen, Chris, this has been great. I mean, before we wrap up here, is there anything we didn't talk about that you think it's important for analysts or investors to just consider? Any issues we didn't get a chance to discuss?

CD: I think what analysts should try to understand from Bombardier is, certainly for the aftermarket segment, when they say they have 50% share, 50% share of what? Like, what's in that number? That would be one question. If I was an analyst, I'd be asking that question. The other question I'd be asking is, if you look at their most... they've got these timings of cash flows and deposits and progress payments, and they allude to it in their 10K, but it's very unclear how that impacts their cash flow. Like, if I was an analyst, where I would be spending my time on Bombardier is the cash flow projections. Where's that cash coming from? And what's impacting the timing of the cash flows relative to new aircraft deposits, progress payments, inventory shifts, and what is the, I'll call it real... that's probably the wrong term... but I'd say, the fundamental business underlying cash flow? Because for the long term, eventually, Bombardier is going to have to invest in aircraft. They're going to have to look at M&A. They're going to have to look at other types of capital investments. And if you don't have a clear line of sight on how you will continue to manage that debt down, and what's the details of it? You're just simply not going to have the balance sheet strength to go do a deal. That would be probably my first focus. A second would be what's in the market share numbers for aftermarket, because that'll give you some insight into how much more growth can come out of that aftermarket from where it is today. And then the rest is just, you know, as an analyst, understand the industry growth, understand the potential demand problems within the industry growth. And I said earlier, the canary in the coal mine is used aircraft. And the other thing I'd look at is high net worth creation, which right now is very healthy. So as long as that's really healthy, it kind of gives you a baseline. Here's the rate of high net worth generation. That high net worth generation gives you a sense on how you can use that as a proxy for what's going to be the demand creation. That's why... and just final comment... that's why business valuations are really important because a lot of the high net worth value creation is coming out of business valuations. So if business valuations took a step function down and didn't recover within a reasonable timeframe, I think the industry would definitely have a big, it'd look like 2007, 2008.

JM: Great. Well, listen, thanks a lot, Chris. This has been great. Really glad we could do it. Appreciate it.

CD: All right. Thanks a lot. You have a good one.

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