Bombardier’s 'hugely disappointing' forecast cut sparks speculation it may quit the aviation business
Potential end of Bombardier’s involvement in the A220 program combines with new stumbles in its rail business to undermine a once-great name in manufacturing
Emily JacksonJanuary 16, 2020
4:58 PM EST
Bombardier Inc. warned it may ditch its joint venture building the A220 aircraft with Airbus and will consider selling even more assets to pay down debt, renewing investor worries about the Montreal-based manufacturer’s ability to stay afloat as the clock runs down on its five-year turnaround strategy.
The beleaguered plane and train maker’s stock price tanked more than 30 per cent on Thursday after it slashed its 2019 financial forecast for the second time in less than a year, largely due to missed milestones, delayed deliveries and extra production costs for several challenging rail projects. By close, Bombardier stock had fallen nearly 32 per cent to $1.22 on the Toronto Stock Exchange.
The “hugely disappointing” announcement surprised analysts given executives’ previous insistence that the company had turned a corner.
“This is a significant setback following management’s announcement following the third quarter that the worst for Bombardier Transportation may be behind,” BMO analyst Fadi Chamoun noted to clients.
Bombardier has already shed most of its commercial aviation assets since chief executive Alain Bellemare began his turnaround plan in 2015, focusing instead on the more profitable rail and business jet divisions in a bid to build a leaner, more financially stable company.
Now it’s mulling whether it should go one step further and abandon its partnership with Airbus, even though Bombardier has sunk about $6 billion into the program and committed to it for approximately five more years.
It expects to take a significant writedown on the Airbus venture after a business plan review indicated the A220 program will take longer to break even, make less money over its lifespan and require more upfront investments from cash-strapped Bombardier.
In 2017, Bombardier ceded control of its cash-guzzling C-Series program to Airbus, which renamed the jet the A220 under a joint venture owned 50.01 per cent by Airbus, 31 per cent by Bombardier and 19 per cent by the province under Investissement Québec.
The announcement of a potential exit comes days after Bellemare celebrated the maiden commercial flight of the A220 in Canada and praised Air Canada for buying the plane at a time when the market had limited confidence in the program.
For its part, Airbus Canada Ltd. said it cannot comment on Bombardier’s financial situation but that its position remains unchanged.
“Airbus remains committed to the success of the A220 programme and will continue to fund the programme on its way to breakeven,” spokeswoman Marcella Cortellazzi said in an email.
Since Airbus took charge of the program, the A220 has gained positive momentum. It has delivered 105 jets out of a total of 600 orders and hired an additional 700 people at the manufacturing facility in Mirabel, Que. for a total of 2,700 employees.
If Bombardier follows through and exits the partnership, its business jet will be the only remaining aviation aspect of its business.
But National Bank analyst Cameron Doerksen speculated that it could sell that, too, as management indicated it was looking for other ways to pay down its approximately $9-billion debt faster.
“Investors are rightly nervous about the company’s liquidity position again,” Doerksen noted to clients.
Bombardier said it ended the year with $2.6 billion in cash, yet it spent more than $2 billion in the first three quarters, Doerksen noted. He expects liquidity to become an ongoing concern even though Bombardier is expecting to get about a $1.1-billion cash influx when it closes two deals selling off aerospace assets: the CRJ program and its aerostructures division.
The aviation business is “solid and has significant value” with about a $6.6-billion valuation, Doerksen wrote, noting its refreshed lineup with the Global 7500, decent margins and a good backlog of orders.
Timing caused some delivery hiccups in the fourth quarter, further hurting revenue considering the jet’s starting price is US$73 million, but Bombardier expects to deliver four more planes imminently, spokeswoman Jessica McDonald said.
If Bombardier ditches aviation, it will rely solely on the rail division that burned through cash in 2019 as it tried to right itself.
Despite its ongoing problems, Doerksen said it makes more sense to keep transportation as a standalone business given its $36-billion backlog and an expected increase in demand for rail due to urbanization and a push for greener modes of travel.
Still, Bombardier revealed it will take a $350-million writedown in its transportation unit in the fourth quarter, resulting in a $230-million loss in the division due to problems with train projects in the UK, Switzerland and Germany. It’s negotiating with customers to reset schedules and resolve late delivery penalties.
Earlier this month, Bombardier’s rail unit got more bad press when New York City pulled 300 of its subway cars out of service during morning rush hour due to unreliable door mechanisms.
“Bombardier sold us lemons,” city comptroller Scott Stringer said in a report.
Bombardier will release its final financial results for 2019 on Feb. 13.
https://business.financialpost.com/...l-year-results-on-challenging-rail-projects-2
Potential end of Bombardier’s involvement in the A220 program combines with new stumbles in its rail business to undermine a once-great name in manufacturing
Emily JacksonJanuary 16, 2020
4:58 PM EST
Bombardier Inc. warned it may ditch its joint venture building the A220 aircraft with Airbus and will consider selling even more assets to pay down debt, renewing investor worries about the Montreal-based manufacturer’s ability to stay afloat as the clock runs down on its five-year turnaround strategy.
The beleaguered plane and train maker’s stock price tanked more than 30 per cent on Thursday after it slashed its 2019 financial forecast for the second time in less than a year, largely due to missed milestones, delayed deliveries and extra production costs for several challenging rail projects. By close, Bombardier stock had fallen nearly 32 per cent to $1.22 on the Toronto Stock Exchange.
The “hugely disappointing” announcement surprised analysts given executives’ previous insistence that the company had turned a corner.
“This is a significant setback following management’s announcement following the third quarter that the worst for Bombardier Transportation may be behind,” BMO analyst Fadi Chamoun noted to clients.
Bombardier has already shed most of its commercial aviation assets since chief executive Alain Bellemare began his turnaround plan in 2015, focusing instead on the more profitable rail and business jet divisions in a bid to build a leaner, more financially stable company.
Now it’s mulling whether it should go one step further and abandon its partnership with Airbus, even though Bombardier has sunk about $6 billion into the program and committed to it for approximately five more years.
It expects to take a significant writedown on the Airbus venture after a business plan review indicated the A220 program will take longer to break even, make less money over its lifespan and require more upfront investments from cash-strapped Bombardier.
In 2017, Bombardier ceded control of its cash-guzzling C-Series program to Airbus, which renamed the jet the A220 under a joint venture owned 50.01 per cent by Airbus, 31 per cent by Bombardier and 19 per cent by the province under Investissement Québec.
The announcement of a potential exit comes days after Bellemare celebrated the maiden commercial flight of the A220 in Canada and praised Air Canada for buying the plane at a time when the market had limited confidence in the program.
For its part, Airbus Canada Ltd. said it cannot comment on Bombardier’s financial situation but that its position remains unchanged.
“Airbus remains committed to the success of the A220 programme and will continue to fund the programme on its way to breakeven,” spokeswoman Marcella Cortellazzi said in an email.
Since Airbus took charge of the program, the A220 has gained positive momentum. It has delivered 105 jets out of a total of 600 orders and hired an additional 700 people at the manufacturing facility in Mirabel, Que. for a total of 2,700 employees.
If Bombardier follows through and exits the partnership, its business jet will be the only remaining aviation aspect of its business.
But National Bank analyst Cameron Doerksen speculated that it could sell that, too, as management indicated it was looking for other ways to pay down its approximately $9-billion debt faster.
“Investors are rightly nervous about the company’s liquidity position again,” Doerksen noted to clients.
Bombardier said it ended the year with $2.6 billion in cash, yet it spent more than $2 billion in the first three quarters, Doerksen noted. He expects liquidity to become an ongoing concern even though Bombardier is expecting to get about a $1.1-billion cash influx when it closes two deals selling off aerospace assets: the CRJ program and its aerostructures division.
The aviation business is “solid and has significant value” with about a $6.6-billion valuation, Doerksen wrote, noting its refreshed lineup with the Global 7500, decent margins and a good backlog of orders.
Timing caused some delivery hiccups in the fourth quarter, further hurting revenue considering the jet’s starting price is US$73 million, but Bombardier expects to deliver four more planes imminently, spokeswoman Jessica McDonald said.
If Bombardier ditches aviation, it will rely solely on the rail division that burned through cash in 2019 as it tried to right itself.
Despite its ongoing problems, Doerksen said it makes more sense to keep transportation as a standalone business given its $36-billion backlog and an expected increase in demand for rail due to urbanization and a push for greener modes of travel.
Still, Bombardier revealed it will take a $350-million writedown in its transportation unit in the fourth quarter, resulting in a $230-million loss in the division due to problems with train projects in the UK, Switzerland and Germany. It’s negotiating with customers to reset schedules and resolve late delivery penalties.
Earlier this month, Bombardier’s rail unit got more bad press when New York City pulled 300 of its subway cars out of service during morning rush hour due to unreliable door mechanisms.
“Bombardier sold us lemons,” city comptroller Scott Stringer said in a report.
Bombardier will release its final financial results for 2019 on Feb. 13.
https://business.financialpost.com/...l-year-results-on-challenging-rail-projects-2