The federal government’s new tax on luxury items is hurting Bombardier Inc.’s BBD-B-T ability to clinch new sales for its private jets in Canada, the company says. The situation stands in stark contrast to strong orders for its planes elsewhere in the world.
Sales activity in Canada has cooled since the Trudeau government’s new tax on luxury items came into effect in September, chief executive officer Éric Martel told reporters Thursday after the company reported better-than-expected third-quarter results.
“It’s disappointing,” Mr. Martel said. “We normally have a certain amount of airplanes being sold in Canada. We’ve seen a slowdown. This was what we were anticipating since the beginning.”
Ottawa rolled out the tax, first proposed in the 2021 budget, as a way to raise more revenue from wealthy Canadian residents, along with hikes in the top income brackets. The levy, of either 10 per cent or 20 per cent depending on the value of the purchase, applies on cars and aircraft worth more than $100,000 and boats priced at more than $250,000.
The Liberals have argued the luxury tax is needed to help pay for COVID-19 programs. Businesses and industry groups have warned it will have a net negative effect on the economy, penalizing plane manufacturers, operators, distributors, pilots, suppliers and “the entire aviation ecosystem.”
“This tax is counterproductive and will put Canada at a disadvantage compared to our trading partners,” Aerospace Industries Association of Canada president Mike Mueller said in an e-mailed statement Thursday. Early estimates indicate more than 1,000 jobs will be lost by the measure, he said.
The impact to Bombardier is not huge, but not negligible either. Mr. Martel has said 5 per cent of Bombardier’s US$6-billion in annual sales come from Canadian customers, warning that eventually the tax could affect employment if the company reduces its production cadence in line with lower orders.
After years of turmoil, Bombardier’s CEO is trying to stage a recovery for the industrial giant that hinges on a slimmed-down business model focused solely on selling and servicing private jets. The company has shifted its focus to larger-cabin planes, such as the US$75-million Global 7500, whose customers are less sensitive to economic shocks.
For the moment, Bombardier strong sales in the United States and other countries are overshadowing any Canadian weakness. The company’s backlog of planes sold but not yet delivered grew by US$300-million during the three-month period ended Sept. 30, the Montreal-based company said Thursday. It now stands at US$15-billion, a level not seen in six years.
Bombardier and its rivals are riding a surge in demand for private air travel during the COVID-19 pandemic, which has lured business travellers out of commercial airliners and into private jets. Airlines drastically scaled back available flights during the health crisis, pushing individuals to consider private flying options. More recently, passenger congestion at airports has contributed to the trend.
Bombardier reported a net profit of US$27-million, or 20 cents a share, for its latest quarter, reversing a loss of US$376-million or $3.97 a share during the same period last year. Analysts had forecasted a loss of 53 cents a share on average.
Revenue came in at US$1.5-billion as Bombardier boosted its sales from servicing and maintaining jets by 20 per cent. The company tallied positive free cash flow of US$52-million.
Bombardier maintained its previous financial guidance, saying it remains on track to ship at least 120 jets this year. The company has paid down US$873-million in debt in 2022. Deleveraging moves have allowed the manufacturer to free up close to US$300-million in annualized interest costs.
“We’re very excited about all that extra cash that is coming back to the business now,” said chief financial officer Bart Demosky. Gross debt at the end of the quarter stood at US$6.2-billion, with an average interest rate just under 7.5 per cent, he said.