Bombardier hits cash snag on Australian train order
Bombardier Inc’s hopes of receiving initial payments for a A$4.4 billion contract to build 75 electric trains for Australia’s Queensland state government have been hit amid accusations of design faults. The Canadian company had expected to start booking proceeds from that deal late last year to help meet cash-flow targets. A person familiar with the company’s thinking said it had concerns over its rail division’s operational cash flow in the first quarter of this year.
Delays in being paid, and the added cost of fixing any manufacturing faults, could make it harder for Bombardier Transportation to reach its 2017 revenue target of around $8.5 billion, up from $8 billion in 2016, said an industry analyst, who didn’t want to be named as he is not authorised to talk to the media. Similarly, it aims to push up its EBIT (earnings before interest and tax) margin slightly to about 7.5 per cent.
The issues with the Queensland order — ranging from braking problems to driver visibility and disability access — come on top of other hitches that have weighed on Bombardier’s rail division. Separately, a Canadian judge is poised to rule on a dispute over a Cad $770 million contract with Toronto’s Metrolinx system.
They also come to light as Bombardier is again discussing a potential merger of its rail unit, the Montreal-based plane and train maker’s most reliable cash generator, with Germany’s Siemens, people close to the matter said this week.
Siemens’ transportation business has also had product flaws in its trams, and there were delays recently in supplying high-speed trains to state-owned German rail operator Deutsche Bahn.
Claas Belling, spokesman for Germany-based Bombardier Transportation, declined to comment on specific, confidential contract terms, but said the Queensland deal is one of several hundred agreements globally. “Some may be performing better than plan, while others may lag,” he said.
The possible rail merger talks come as Bombardier aggressively cuts costs as part of a 5-year turnaround plan. The company considered bankruptcy in 2015 when it faced a cash crunch while bringing two jets to market, but CEO Alain Bellemare has since led a restructuring, and the company has received cash infusions from the Quebec government and Canada’s second-largest pension fund.
It’s not clear to what extent Bombardier is responsible for the design flaws on the Queensland contract.
Australia was mentioned as an example in a broad internal review of the rail division from 2015 that raised concerns about a systemic problem: At the time, the company agreed to custombuild trains to the client’s request, which is more risky and costly than offering a standard line of equipment, said another person familiar with the matter.