Bombardier loan could take 15 years to pay back
$372.5M interest-fee government aid to support R & D of CSeries, business jets
TORONTO The federal government’s $372.5-million loan to Bombardier may not be fully repaid for 15 years, the company said Thursday.
The interest-free loan is “royalty repayable,” Bombardier chief financial officer John Di Bert said, providing details for the first time on the terms of the government aid that was announced earlier this month.
“That means that it will be repaid on either a function of business jet deliveries or CSeries unit deliveries,” Di Bert told analysts on the company’s fourth-quarter earnings call.
“It will be over a significant amount of time,” he added. “The program runs for about 15 years, including a bit of a grace period the first two years, so no repayments for the first two years.”
Di Bert said the company will receive between $70 million and $100 million per year from 2017 to 2020. The funding will go toward research and development of Bombardier’s new Global 7000 business jet and the ongoing development of the CSeries commercial jet.
Company spokesman Simon Letendre said the specific details of the agreement are confidential so he couldn’t provide any information about the level of revenue or deliveries that would trigger repayment.
“We are not going to comment on the specifics, but we are committed to repaying these contributions in full, as we always did in the past,” Letendre said in an email.
The government support comes as Bombardier continues to make progress on its five-year turnaround plan, which was implemented by chief executive Alain Bellemare in 2015 as the company burned through cash and struggled to bring the CSeries to market.
Bombardier expects to deliver 30 to 35 CSeries this year, up from seven last year. The company was forced to cut its 2016 delivery forecast in half because of supplychain issues at its engine supplier, Pratt & Whitney.
Bellemare said he expects to announce another big order for the aircraft this year, which has a firm backlog of approximately 350 jets. The last major order for the CSeries was in April 2016 from Delta Air Lines Inc.
“We have a number of ongoing campaigns that the team is actively working on,” Bellemare said. “If you look at the comments we’re getting from our existing current operators, it’s very, very positive. As you know, it’s a small world, so that has a positive ripple effect on other airlines.”
Bombardier is also applying the lessons it learned from the difficult CSeries development process to its Global 7000 business jet, which has conducted about 100 hours of flight tests and is scheduled to enter service in the second half of 2018. “The maturity of the aircraft at this stage is probably two to three times better than what we saw with the CSeries when the CSeries had its first flight,” Bellemare said. “It shows that we’ve been building on the lessons learned from the CSeries.”
Bombardier reported a fourthquarter loss before special items of US$0.07 per share, wider than the US$0.03 loss forecast by analysts. Revenue fell 13 per cent to US$4.38 billion but the net loss narrowed significantly to US$259 million, reflecting stronger margins. The company beat its 2016 earnings guidance with EBIT before special items of $427 million, and its yearover-year cash burn improved by US$778 million to US$1.06 billion.
“With the results coming in ahead of guidance, we see this as a considerable positive as it continues to add to management credibility and provide greater conviction into the achievability of the five-year plan,” RBC analyst Walter Spracklin wrote in a note to clients. “More importantly, we’re now through the critical de-risking/liquidity portion of the plan and we are now moving into the earnings and cash-flow transformation. … We see valuation building as management executes.”
Bombardier also reiterated its 2017 guidance, which calls for low-single-digit revenue growth and a 35 per cent increase in EBIT before special items. “Bottom line, we have greatly improved our operational and financial performance and there is much more to come,” Bellemare said.
(Royalty repayable) means that it will be repaid on either a function of business jet deliveries or CSeries unit deliveries. JOHN DI BERT, CFO, Bombardier