TURBULENT TRANSITION
Deep job cuts at Bombardier
The CSeries may be flying, but the pain isn’t over at Bombardier Inc.
The company announced Friday its second round of widespread layoffs in less than a year, saying it will eliminate 7,500 positions or more than 10 per cent of its global workforce, including 2,000 jobs in Canada. This is in addition to the 7,000 job cuts announced in February.
Two-thirds of the job losses will come from Bombardier’s trainmaking division, while the rest will come from its aerospace business.
Bombardier said the layoffs will be partly offset by the “strategic hiring” of 3,700 people to support the ramp-up of the CSeries jetliner program and the new Global 7000 business jet, which is scheduled to enter service in 2018.
The move is expected to save the company US$300 million a year by the end of 2018 and is part of its five-year plan to improve revenue, margins and free cash flow by 2020. Restructuring charges of US$225 million to US$275 million will be recorded beginning in the fourth quarter and through 2017.
“When we launched our turnaround plan last year we committed to transforming our company; to reduce costs, to leverage our scale and to become more efficient in all our operations, and that is exactly what we are doing,” CEO Alain Bellemare said in a statement.
“While restructuring is always difficult, the actions announced today are necessary to ensure Bombardier’s long-term competitiveness and position the company to continue to invest in its industryleading portfolio while also deleveraging its balance sheet.”
Bellemare was hired in early 2015 to help restore stability at Bombardier, which had been struggling with delays, cost overruns and glacial sales of the CSeries. Since then, the smaller CS100 has begun commercial flights with its first customer, Swiss International Air Lines AG, and the larger CS300 is set to enter service before the end of the year. Bombardier has also racked up CSeries sales to two major customers, Air Canada and Delta Air Lines Inc.
However, the company is still struggling with delays in CSeries production due to problems at its engine supplier, as well as a slowdown in business jet demand and ongoing production problems at its transportation division. It also had a huge debt load of nearly US$9 billion at the end of June.
“I guess the bottom line is that given the (slow) demand for the CSeries and the pricing environment for jetliners these days, restructuring would appear to be inevitable. This is just a bit deeper than I’d expect,” said Richard Aboulafia, vice-president of analysis at Teal Group Corp., an aviation research firm.
Bombardier has received some assistance in the form of a US$1billion investment in the CSeries program by the Quebec government and a US$1.5-billion investment in the company’s transportation business by the province’s pension fund, the Caisse de depot et placement du Quebec.
It requested another $1 billion from the federal government last November but that funding has yet to materialize despite continual protestations of support.
Transport Minister Marc Garneau said the layoffs won’t affect the ongoing negotiations.
“Those discussions are continuing and there is nothing in today’s announcement that will change any of that,” Garneau told The Canadian Press.
The government has said that preserving Canadian jobs would be a condition of any financial assistance.
BMO analyst Fadi Chamoun estimated that combined with the 7,000 job cuts announced in February, Bombardier is on track to realize US$550 million to US$600 million of recurring cost savings and boost its operating margin by nearly 300 basis points by 2018.
“We credit management for making these kinds of tough decisions that are needed to keep the transformation plan on track,” Chamoun wrote in a note to clients.
Bellemare told Bloomberg News that it’s too early to say whether Bombardier will need to cut further.
“It would be difficult to say we are done” with cutbacks, he said. “We need to become a very agile and flexible organization. We need to drive productivity day in and day out. We need to look at our cost structure every day.”
Bombardier shares closed down 1.12 per cent at $1.76.