Bombardier may struggle to close deals, analysts say
Bombardier Inc. will temporarily send home 12,400 employees in Canada as it shuts down private jet and rail production in Ontario and Quebec in accordance with provincial orders to suspend non-essential work to combat the spread of COVID -19.
The disruption threatens the Montreal-based plane and train manufacturer’s already shaky position as it tries to pay down debt by selling off everything but its private jet business, a tenuous business to be in during a global economic slowdown. Analysts say it’s no longer clear whether Bombardier will be able to close the deals given the market rout, predicting further government intervention or privatization may be in the company’s future.
Bombardier said it will temporarily suspend most operations starting Tuesday evening until April 26. It’s assessing whether it can re-tool plants to build ventilators or other health care equipment and has been in touch with the federal and Quebec governments, spokeswoman Jessica McDonald said in an email.
About 70 per cent of Bombardier’s Canadian workforce of 17,600 people will be furloughed, including plant workers and corporate employees who aren’t needed in the short term, McDonald said. They will not be paid, but will continue to receive benefits and are encouraged to apply for employment insurance.
The work stoppage follows two confirmed COVID-19 cases at Bombardier facilities. One was at the Downsview plant in Toronto, where about 3,000 workers build private jets, and the other at the Centre of Excellence in Montreal, with the individual in self isolation since Mar. 16. Bombardier had already implemented “strict” social distancing, sanitation and personal hygiene measures, McDonald said.
Bombardier’s senior leadership team will forgo pay during the work stoppage. The board has agreed to forgo pay for the rest of the year.
Bombardier also suspended its 2020 financial guidance, cut all discretionary spending and is pursuing additional measures to improve its liquidity.
The coronavirus pandemic hit just as Bombardier was finishing up its five-year turnaround plan to deal with massive debt it incurred building a commercial aircraft, the C-Series, that aimed to compete with Boeing and Airbus. Ultimately it had to shed most of its assets, including commercial aircraft and its train division, to pay off debt. It ended the five years as a scaled back business exclusively focused on private jets.
In mid-March, Éric Martel, formerly the CEO of Hydro-Québec, replaced Alain Bellemare as chief executive.
But it’s no longer clear whether Bombardier can actually close the deals that are critical to meet upcoming debt maturities in 2021, Bank of Montreal analyst Fadi Chamoun noted to clients Friday.
“Needless to say, the ongoing market uncertainty creates concern over whether these asset sale transactions can be consummated,” Chamoun wrote.
Bombardier was hoping for a cash influx of $550 million from selling the CRJ business to Mitsubishi Heavy Industries, Ltd and $500 million from the sale of its aerostructures operations in Ireland and Morocco to Spirit Aerosystems Inc. Both deals are at risk due to the massive cash crunch facing airlines as demand for air travel evaporates, Cowen analyst Cai von Rumohr noted to clients Monday. The buyers may push for lower prices or in Spirit’s case cancel the deal altogether, he wrote.
The pandemic could also jeopardize France’s Alstom S.A.’s purchase of Bombardier’s $8.5-billion rail division, von Rumohr wrote, adding that regulatory approval is expected to take a year.
“We see Canadian/Quebec governments as likely to offer support if Bombardier gets close to the edge,” he said. “However, their interest will be to save jobs, not shareholders.”
Bombardier’s stock price has fallen around 65 per cent since the start of the year. It closed up 2.3 per cent Tuesday to 44 cents in Toronto, with a market capitalization of close to $1.14 billion.