Investing.com -- On April 22, 2025, Moody’s Ratings shifted its outlook for Bombardier Inc (TSX: BBDb ). to positive from stable. In addition, Moody’s affirmed the company’s B1 corporate family rating (CFR), its B1-PD probability of default rating, and its B1 senior unsecured notes rating. Ratings for LearJet Inc.’s backed senior unsecured revenue bonds, issued by the Connecticut Development Authority, were also affirmed at B1. Furthermore, Bombardier (OTC: BDRBF ) was upgraded to SGL-1 from SGL-2.

The change in outlook to positive is a reflection of Bombardier’s increasing earnings, expansion in its higher-margin aftermarket services, a stable $14.4 billion backlog, and debt repayment plans aimed at reducing leverage, according to Jamie Koutsoukis, a Moody’s Ratings analyst.

Bombardier has seen progress in its strategic priorities, leading to improved margins and earnings while lowering its total debt. The company has been generating positive free cash flow since 2021, and its adjusted operating margin rose to over 10% in 2024 from 4% in 2021. The company’s revenue visibility remains robust, with a unit book to bill ratio of 1x in 2024. Moreover, Bombardier has cut debt, repaying over $100 million in 2024 and an additional $300 million so far in 2025.

Bombardier’s CFR is supported by factors such as good liquidity over the next year, significant scale, a strong position in the business jet market, and a $14.4 billion backlog. The rating is limited by the company’s participation in the cyclical business jet market, which has strong competitors and a niche consumer base, and high fixed charges of about $700 million per year that could limit the company’s free cash flow.

Over the next year, Bombardier has very good liquidity (SGL-1), with about $2.3 billion of sources versus about $200 million of uses. Sources include cash of about $1.3 billion as of Q4/24, $429 million available on its secured revolving credit facility, and about $600 million in free cash flow through to March 2026. Uses are about $200 million of financial liabilities. The company has C$166 million of debt due in June 2026 and $150 million in December 2026.

The positive outlook is based on the expectation that Bombardier will continue to generate free cash flow and that margins and financial leverage will improve in 2025 and 2026, with leverage trending below 4x.

The ratings could be upgraded if the company maintains a debt to EBITDA ratio below 4x and continues to generate positive free cash flow. Conversely, the ratings could be downgraded if Bombardier’s operating performance deteriorates or if there are issues with its ability to deliver aircraft as per its guidance. The rating could also be downgraded if the debt to EBITDA ratio approaches 5.5x or if EBIT to Interest falls below 1.5x.

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