BOMBARDIER’S BACK
Despite cash drain, CEO assures analysts company is on track to profitability
Despite falling revenues, company pledges it’s in a better position than a year ago,
With the smaller CSeries jet now flying commercial routes for Swiss Air Lines and certification granted for the larger jet, Bombardier Inc. says it is moving from development into production.
It should slow its cash drain, though its free cash usage in the second quarter was $490 million (U.S.), down from $808 million in the same period in 2015, the company reported Friday.
Bombardier, which reports in U.S. dollars, said revenues in its latest quarter fell by almost $300 million to $4.31 billion from $4.62 billion, the year before.
The company said it has access to credit worth $4.4 billion, which includes a $500 million payment from the Quebec government, with another $500 million due in September.
At that point, the Quebec government will have a 49.5-per-cent stake in the CSeries program, a costly and ambitious development plan that was plagued by cost overruns and delays.
“We have clearly turned the corner,” said Bombardier president and CEO Alain Bellemare during a conference call with analysts after reporting a second-quarter net loss of $490 million. That compares to a profit of $125 million in the same period a year earlier.
After adjustments, Bombardier’s loss was $83 million or 6 cents a share. Bellemare noted that the company has made some tough decisions as business jet production has slowed amid weak demand.
He said more than 60 per cent of 7,000 job cuts have been implemented so far.
That means the company, which also makes trains, is on track to get back to profitability, he said.
“Bombardier is in a much better position today than we were a year ago,” said Bellemare, who took the reins in February 2015, from Pierre Beaudoin, who is grandson of the company’s founder.
“We will continue to build this company and make it strong for years to come.”
He confirmed that Bombardier remains in talks with the federal government on its request for $1 billion (U.S.) in assistance.
“It’s a complex negotiation,” Bellemare said. “We are engaged on both sides and are trying to find a win-win situation that would work.”
Some reports hinted that Ottawa wants to see changes to Bombardier’s dual class share structure that gives the Bombardier and Beaudoin families voting control even though they only have a minority stake.
The aerospace division expects to build 12 to 15 CSeries aircraft this year at its Mirabel assembly facility, and the production rate should double next year.
Earlier this year, Bombardier announced firm orders from Air Canada and Delta Air Lines for the CSeries, as well as an option conversion for airBaltic. However, the prices were deeply discounted, forcing the company to take a $492 million charge in this quarter.
“We are seeing tremendous interest from airlines. It is clear that the tone has changed,” Bellemare said.
The company also announced Friday that it restructured an order with Russian leasing company Ilyushin Finance Co., modifying the original order for 32 CS300 aircraft, the larger version, and options for another 10. Instead, Ilyushin will order 20 CS300 jets and one Q400 turboplane, with options for five Q400.
The company is not taking any charge as a result of the change, and Bellemare said the deal helps its Q400 turboprops, which are built at Toronto’s Downsview facility.
Unionized workers in Downsview have also agreed to outsource work on parts of the Q400, namely the cockpit and wing, as part of an effort to be more competitive with main rival ATR, whose plane is cheaper.
“It’s a very competitive segment of the market as well,” Bellemare said, insisting Bombardier has the best aircraft. “For us to be able to land additional orders, we need to keep working on costs. The strategy is clear.”
In Toronto, there are also growing complaints about Bombardier Transportation’s slow delivery of streetcars to the Toronto Transit Commission and anticipated delays in new light-rail transit vehicles for Metrolinx’s Eglinton Crosstown project.
The TTC has filed a $50-million claim against the company over repeated delays in the delivery of its new $1.2-billion streetcar fleet.
Metrolinx had issued a notice of default to Bombardier over a separate $770-million order for up to 182 light rail vehicles. The first pilot vehicle was due in the spring of 2014, but has not yet been delivered. “To ensure we open Eglinton Crosstown on time in 2021, Metrolinx has exercised an option in our contract,” said Metrolinx spokeswoman Anne Marie Aikins via email.
“As with all commercial contracts of this type, this provision is there to protect both parties and ensure that the public commitment for new service is fulfilled. Serving notice is the right thing to do from a business perspective.”
During Friday’s conference call, there were no questions about those delivery delays, which has also affected Waterloo’s new LRT.
Bombardier officials insisted the company’s train division is focused on cutting costs and improving margins.
The train division has not seen any impact from the June decision by U.K. voters to leave the EU, in terms of slowdown of orders.
“So far, it pretty much has been business as usual,” said Bellemare.
Bombardier’s chief financial officer, John Di Bert, added that the train division expects to see order campaigns heat up in the second half of the year.
“Nothing has led us to believe different at this point. We continue to watch that. It still seems like a good environment,” he said.