Bombardier CEO throttles back on new-jet plans

Focus now is cash flow, debt reduction

is scaling back plans to begin a new aircraft program, preferring instead to focus on generating cash flow and whittling down about US$9 billion in debt, said chief executive Alain Bellemare.

“Over the past few years there was an overinvestment in aerospace,’’ Bellemare said in an interview. “We don’t want to jump and launch an investment in a new program just for the sake of it.”

Bombardier has racked up debt over the last few years for such programs as the new Global 7000 business plane, which is due to enter service late next year, and the CSeries commercial jetliner, which made its debut last year and cost at least US$2-billion more than planned. The company is now about halfway through a five-year turnaround plan to restore profit and reduce debt. It has predicted breakeven cash flow next year.

“We want to make sure we optimize the cash that we will start generating in 2018, 2019 and beyond,” said Bellemare, 56. He became CEO in 2015 and immediately set about shoring up the company’s balance sheet by raising more than US$5 billion, including US$1.5 billion from the Caisse de Dépôt et Placement du Québec, a US$1-billion investment in the CSeries by Quebec’s provincial government and an equity sale.

The existing product line will generate sufficient revenue, he said, meaning the company sees no immediate need to start work on a new airplane. That marks a shift from January, when chief financial officer John Di Bert said Canada’s biggest aerospace company would probably decide on a new model within 12 to 24 months.

Since Bombardier agreed in October to cede control of the CSeries to Airbus, analysts have expected that the next big aircraft investment would be a business plane, typically the Montreal-based company’s most profitable segment.

Bombardier’s mid-size Challenger line is the most likely candidate for a new model, said Ernie Arvai, a partner at aviation consulting firm AirInsight.

“You go where the margin is,” he said. “I don’t see the opportunity in commercial aircraft unless they do a larger CSeries, and now that Airbus will be running the show, it won’t be Bombardier’s makes good business sense.’’

Bombardier remains committed to building commercial planes, such as CRJ regional jets and Q400 turboprops, Bellemare said.

“Is Bombardier still going to be active in commercial aircraft? The answer is: For years to come, yes,’’ he said in an interview Dec. 14 in New York. “We are going to have a 40-per-cent participation in the CSeries, and we have no plan to exit that. Short term, we want to keep selling Qs and we want to keep selling CRJs.’’

The effort to improve cash flow could include buying back the Caisse’s 30-per-cent stake in Bombardier’s rail unit, Bellemare said. Canada’s second-largest public pension fund manager paid US$1.5 billion last year for its holding in the rail operation, which has an order backlog of more than US$33 billion.

“It’s got nothing to do with the Caisse,” he said. “They have been a great partner. They came in at a time when we needed that.”

“It’s got everything to do with how we return the best money to our shareholders,’’ Bellemare said.

Meanwhile, in an interview with The Canadian Press, Bellemare said the company needs an Alabama assembly line regardless of whether the United States proceeds with massive duties on imports of the company’s CSeries commercial jets.

Bellemare said he is disappointed but not surprised by the U.S. Department of Commerce’s decision Wednesday to impose duties of 292.21 per cent.

He says nothing justifies such duties.

Boeing launched the trade case in April, arguing that governments in Canada and Britain subsidized the plane’s development which allowed Bombardier to sell it at unfairly low prices.

Airbus, Boeing’s European rival, reached a deal with Bombardier in October to purchase a 50.01-percent stake in the CSeries commercial jet and plans to build an assembly line in Alabama for American customers while maintaining the primary line in Mirabel, Que.

Bellemare says the Alabama facility is crucial to a deal Bombardier has to provide Delta Air Lines with 75 CS100 planes. • SAO PAULO/BRASILIA Plane makers and are discussing a “potential combination of their businesses,” the companies said on Thursday.

Embraer’s shares soared around 30 per cent in Sao Paulo on the joint statement released in Brazil, which did not give details of how a potential tie-up would be structured. Boeing shares were down 0.7 per cent.

The news, first reported in The Wall Street Journal, comes just two months after Boeing rival Airbus SE agreed to buy a majority stake in Bombardier Inc.’s CSeries jetliner program, a direct rival of Embraer’s biggest E-Jets.

Reuters reported then that the CSeries deal could push Boeing and Embraer closer together.

For decades, Canada’s Bombardier and Embraer have faced off in the 70- to 100-seat regional jet segment below the radar of Airbus and Boeing’s larger commercial jet line-ups, but the AirbusBombardier alliance may have tipped that delicate balance.

Any tie-up involving Embraer would require approval by the Brazilian government, which holds a ‘golden share’ in Embraer, a formerly state-run company fully privatized in 2006.

Asked about a potential takeover, a senior official in Brasilia said the government had not been involved in the An Embraer SA E190-E2 jetliner. Bombardier rival Embraer and Boeing are eyeing a partnership.