Good morning, at 7:30 we welcome to the studio Éric Martel, President and Chief Executive Officer of Bombardier, the Quebec aircraft manufacturer. Good morning, Mr. Martel.
You presented your financial results. There were good results — a profit of $303 million US for the quarter. However, there is still a lot of uncertainty. But I want to talk about the profits first, so things are going well for Bombardier.
Listen, this is the fourth consecutive year that we've delivered the results we committed to. We are extremely proud of that. We've had a significant turnaround at Bombardier over the past four years, so things are going well. We're in a completely different situation. We now have 18,900 employees in total, including 10,000 in Quebec — that's where we have the most people. Yesterday, I said right from the start that I was disappointed not to be able to provide a forecast for 2025. You'll understand given the threat of tariffs, which we'll talk about. I was in a position where, in addition, we would have been able to provide forecasts that were exactly in line with what we had originally said we would do for 2025. To put it in context, a young company listed on the stock exchange, when it files its financial statements, will say: here's what's coming, here's what we foresee, this is our exact forecast. You've respected that in recent years.
There's so much uncertainty in the United States that Bombardier has chosen not to hazard making precise revenue predictions.
Exactly, that's what happened. There's a decree that the American president signed that was supposed to take effect last week. The tariffs, there was a one-month reprieve. So now, with an existing decree and this threat that on March 1st — well, early March — we could have a 25% tariff, we're in unknown territory. It's like a big dark cloud that we all have over our heads, and we're looking at it and saying: is he going to back off, or is he just going to let it happen? I have to tell you that our risk assessment — even my clients in the US, because from the moment the president put this threat forward, even before he took office, we had a reaction from our clients saying, what are we going to do, what's going to happen, etc. So we've been managing this since then. But our assessment of the risk is still fairly low. The fact that, you know, aerospace supply chains are extremely well integrated. We're a Canadian company, but at the same time we have a North American supply chain. Bombardier creates tens of thousands of jobs in Canada, but we also create tens of thousands of jobs in the United States.
Let me just stop you for a second. We'll talk about how the plane is built and all that later. But regarding the uncertainty, you decided not to make a forecast for a company that is healthy, that's doing well. Have you ever seen that before — an economic situation that pushes a publicly traded company to not make a forecast for the next three months? I don't remember that. I remember that we withdrew our forecasts during the year of COVID — every company did that, by the way, when COVID arrived, they withdrew forecasts. But not to make one right off the bat, that's quite rare.
Let's go back to the planes. The Bombardier plane, the regional jet, the business jet that you sell to your clients — is it Canadian? Is it American? How is it made?
It's interesting. We do the final assembly here. Take for example the Global 5500, the flagship aircraft of the entire business aviation industry. We're proud, we build it here, we assemble it here. But the engines come from GE, from the United States. The wing comes from our own factory in Dallas. So we bring the wings to Canada for assembly, to put on our assembly line on the aircraft. As I was saying earlier, we create about as many jobs in the United States. We have 2,800 suppliers in the United States, Bombardier. So we create a lot of jobs on the other side.
The game right now from the American government is to say, yes, it's great that you have operations in the United States, but bring everything to the United States. But in aerospace, that's not really something that's possible. We could do it, but it would take years to manage that. And at the same time, listen, we had a free trade agreement for about forty years that everyone based their decisions on. We've even designated operations in Mexico as well. I have pieces — for example, I take my airplane wing that I build in Dallas, that I bring here to Canada to put on the assembly line. I have pieces that come from Mexico. I even have pieces that are made here in Montreal that go to Dallas. So it's very complex.
Mr. Martel, your reading of things — if there are customs tariffs of 25%, will your plane be hit with a full tariff because part is in the United States and part is in Canada?
That's an excellent question. I have about twenty experts today, both in Montreal and in Washington, trying to understand what the rules will be. We don't know. You know, there's a decree that says 25% that gives direction. But for example, you have an excellent question: can I subtract the American content from my plane? If I deliver a plane worth $25 million to the United States, will I be taxed on the full $25 million, or will I be taxed on $25 million minus what came from the United States, which might be 10, 12, 15 million? That changes the picture for us significantly. Today I have experts who are looking at this, who have interpretations that we need to validate. That's why we had a lot of unpredictability and why we decided to hold back a little on our forecasts for the year.
Your clients — how did they react? The people who buy your planes, they see this in the news — 25% customs tariffs. Are they saying, are you going to charge me a 25% surcharge?
Absolutely, and that started at the end of November, beginning of December, when the threat emerged. So we assessed the risk with our clients, and we managed it together. I would say it's fairly low because, firstly, the beauty today is that Bombardier has an order backlog of about two years. So people who are buying planes today are going to take delivery of their plane in 2027. So people are saying, well, listen, by 2027 this should be resolved, or maybe not. So there's a risk, I agree with you, but people also understand that there will be midterm elections in the United States. There will be elections, and I think the president's window to renegotiate the agreement is probably the next 18 months. So our assessment, with our experts — and obviously I'm part of this discussion — is that it will be resolved sooner rather than later. Maybe it will never happen. So there will be a certain number of planes that could be exposed, but we don't foresee this being long-term.
If you had to bet, Mr. Martel, will these tariffs — 25% customs tariffs — ever come into effect?
Listen, I think yes. I think, however, the duration — I think because there are two factors. There's the level: yes, it's probably going to be stronger. But then, the other element: if it's 25% for a month, well, listen, we'll get through it and there's nothing there. And today, what's important to try to assess is the duration. Our current assessment is that it won't last that long, because I think we've all talked about it, there will be collateral damage. If tomorrow morning I'm forced to reduce production rates and therefore unfortunately do layoffs because I have too many planes today — because I have many that I sell to the United States — the Americans are going to have just as many, if not more, layoffs. Because as I told you, I have 2,800 suppliers over there. So it's nonsense. I'm of the school — and maybe it's naive — but I think common sense will prevail eventually.
