Bombardier turnaround plan still on track

Despite ‘unforeseen challenges’

More than two years into its five-year turnaround plan,

Bombardier Inc.’s chief executive said the company is on track to achieve its goals by 2020 as it focuses on the profitability of its transportation and business jet units while preparing to give Airbus SE the reins to the CSeries program.

Chief executive Alain Bellemare told analysts gathered at the Bombardier’s annual investor day conference in New York City that the company is preparing to shift from a period of investment, which included significant funding of its marquee CSeries program, towards a growth cycle that will see increased revenues across its divisions.

“Major risks have been retired, the path forward is clear, and we are starting to deliver solid financial performance,” Bellemare said Thursday.

“Despite some unforeseen challenges and difficult markets, I am very proud of the work that the team has done so far. We know that we have more to do.”

Bombardier said the ramp up of transportation projects and an increase in CSeries deliveries will help increase revenues in 2018 as the company approaches the mid-way point of its turnaround plan, launched in November 2015 and aimed at improving cash flows and increasing profit growth.

Bombardier, which records its finances in U.S. dollars, is targeting revenues between $17 billion to $17.5 billion for 2018, an increase of approximately $1 billion from last year but less than analysts expectations, according to Thomson Reuters.

Bombardier estimates that its transportation division — it’s most profitable segment — will see revenues increase to $9 billion in 2018 and $10 billion by 2020.

While the transportation division is expected to face increased competition due to a pending merger between Germany’s Siemens AG and France’s Alstom, the head of Bombardier Transportation said the group is “better prepared for any type of consolidation” because of its recent business transformation.

“We can play the game on our own, on a standalone basis,” Laurent Troger said.

With its business aircraft division preparing for the service launch of the Global 7000 jet, Bombardier said revenues will increase to $5 billion in 2018 and $8.5 billion by 2020, helping offset a potential revenue loss due to the CSeries program coming under Airbus’ control.

Facing a potentially crippling 300 per cent duty on imports of its CSeries jet to the United States, the largest aerospace market in the world, Bombardier announced in October that Airbus will acquire a 50.01 per cent stake of the CSeries program.

The company said Thursday that it will de-consolidate the CSeries program after the partnership with Airbus is finalized, which is expected to occur in mid-2018. With Airbus taking a majority stake of Bombardier’s marquee program, revenues from the commercial aircraft division, which includes the CSeries, CRJ and Q400 planes, are expected to fall to $1.5 billion in 2020. If the program is not de-consolidated, revenues from the commercial aircraft group are expected to reach $5 billion in 2020.

“Not only have we derisked the program, but we’re taking advantage of Airbus’ scale on sales marketing, scale on procurement and purchasing power, and scale in the after-market,” Bellemare said.

“What we’ve done here is we are basically making sure that this program is actually going to generate real value for us, for Bombardier, for Airbus and for customers.”

Over the next three years, the company is aiming to grow revenues by $4 billion to $20 billion, representing a seven per cent compound annual growth rate.

At the same time, Bombardier is targeting a breakeven for free cash flow, plus or minus $150 million, an improvement of about $1 billion from last year.