National Post (National Edition)
Bombardier plans to accelerate cost cuts
Targeting readiness for business jets
MONTREAL • Bombardier Inc. is looking to accelerate cost cuts as it prepares for life as a “pure-play” maker of business jets when the sale of its train-making division is completed next year.
“While the company has undertaken a number of restructuring actions over the past few years, the truth is we still have an infrastructure designed to support twice the capacity of the current market,” chief executive officer Éric Martel told financial analysts on a conference call Thursday morning. “This needs to be addressed, and we are already taking actions.”
Martel spoke after Bombardier reported an adjusted third-quarter loss of US$215 million, or 13 cents a share, compared with a loss of US$55 million, or four cents a share, a year earlier. Revenue fell five per cent to US$3.53 billion amid asset sales and pandemic-related disruptions.
Net income for the period was US$192 million, or five cents a share, Bombardier said. The Montreal-based plane-maker delivered 24 business aircraft in the quarter, seven fewer than a year earlier.
Martel, who took over in April after a stint as Hydro-Québec's top executive, is working to complete the sale of Bombardier Transportation to France's Alstom SA in the first quarter of 2021 — the last in a series of transactions that will narrow the company's focus to business jets. Bombardier has already exited such businesses as commercial aircraft and aerostructures.
With Bombardier expecting global private-jet sales to remain flat for at least a year, Martel said he's focused on building a company that can deliver a “solid financial performance in any market conditions.”
Improving Bombardier's cash performance “remains our highest financial priority,” he stressed.
“We're going to have to learn how to operate profitably in the current market conditions,” Martel said. “We need to have a cost structure and a backlog that allows us to make money at current market conditions delivering 100 to 120 aircraft a year.”
About 100 Bombardier employees and management consultants have begun working on cost-cutting measures as part of a newly created “transformation office,” said Martel, who is personally leading the effort. The “comprehensive companywide initiative” is aimed at “re-envisioning how we operate,” the CEO said.
Job cuts will undoubtedly be part of the plan, Martel said. It's too early to estimate possible savings.
“There will certainly be layoffs that come with this, but I can't tell you where and when,” he told reporters. “No stone will be left unturned.”
Martel specifically ruled out closing plants in Quebec, saying the company's three remaining Montreal-area facilities — one in St-Laurent and two in Dorval — are “part of our plans.”
Bombardier plans to prioritize debt reduction over new product launches in the coming years, executives said Thursday. Bombardier has about US$9.2 billion of long-term debt, and it expects to start life as a business-jet-only manufacturer with about US$4.5 billion of debt after receiving proceeds of US$4 billion from the Alstom deal, chief financial officer John Di Bert said.
“Our product portfolio has been refreshed, and we feel very comfortable with where we are,” Martel said.
Much of Bombardier's future hinges on the continued success of the longrange Global 7500 business aircraft, which has allowed the company to carve out a growing niche in the market's most profitable segment since its December 2018 debut. Bombardier expects to deliver about 12 of the jets in the fourth quarter and another 35 to 40 next year, Martel said. “The aircraft should start to be profitable as we get into 2021,” Di Bert said. “It's going to be premium margins for us.”
Although an unidentified Global 7500 buyer recently scrapped a 12-jet order that was due for delivery in 2023, Bombardier is convinced it can sell the planes more profitably elsewhere, Martel said.
The cancellation gives Bombardier “the opportunity to do better margins on those airplanes because they were at a launch price,” he said.
Bombardier burned through US$706 million of cash in the third quarter, up from US$682 million a year earlier. The company said Thursday it's targeting positive free cash flow of about US$700 million in the fourth quarter — assuming the pandemic doesn't affect operations.
COVID-19 has depressed Bombardier's liquidity by about US$2.25 billion so far, Martel told analysts. Operations this spring were disrupted by a six-week production shutdown, which forced the company to lay off thousands of employees temporarily.
The company had available short-term resources of US$2.7 billion as of Sept. 30, including US$1.2 billion of cash on hand. It expects to finish 2020 with at least US$1.5 billion of cash, Di Bert said.
Bombardier's widely traded Class B shares fell early in the day but came back to close at 30 cents, up 1.7 per cent in Toronto. The stock has dropped more than 80 per cent this year.
Thursday's quarterly report also contained news of an ongoing U.K. Serious Fraud Office investigation into an aircraft order from Indonesian airline Garuda that goes back almost a decade. Bombardier said it's co-operating with the probe.
In May, Indonesia's Corruption Court convicted a former Garuda CEO and his associate of corruption and money laundering in connection with a series of orders — including the purchase of Bombardier CRJ1000 jets in 2011. No charges were laid against Bombardier or any of its directors, officers or employees, the company said Thursday. Bombardier subsequently launched an internal review into the Garuda transactions.
Bombardier officials have met with the Serious Fraud Office to discuss the status of the internal review and their potential assistance with the investigation, according to the company.
“We would prefer not to have it for sure, but the reality is those things happen,” Martel told reporters Thursday, adding that Bombardier was made aware of the investigation about two weeks ago. “We're going to collaborate.”