Commercial aviation exit gives Bombardier liquidity 'to do the right things': CEO
Bombardier Inc., which once made everything from snowmobiles to commercial jets, is poised to become a shadow of its former self as the Canadian manufacturer accelerates asset sales to reduce debt.
The company is completing its exit from commercial aerospace with the sale of its stake in the Airbus SE A220 program, once known as the CSeries, to the European planemaker. Bombardier said in a statement it is also pursuing other “strategic options to accelerate deleveraging.” The company is near a deal to sell its rail-equipment unit to Alstom SA, Bloomberg News reported.
“The CSeries was a cash drain,” Bombardier Chief Executive Officer Alain Bellemare, said in a call with analysts Thursday. “The strategy was always to exit commercial aircraft while protecting jobs. We’ve done that at a very responsible matter. We are now with two very strong businesses and we are continuing to look at our options to see if we can continue deleveraging.”
The dismembering positions Montreal-based Bombardier to retain only its private-jet division -- while giving it a path to taming a US$10 billion debt load.
But for all its financial soundness, Bombardier’s exit from its marquee project marks the end of ambitious plans that once were a source of pride in the largely francophone province. The A220 won praise for fuel-efficient engines, composite wings and an airy cabin featuring large windows. But the plane ran more than two years late and about $2 billion over budget, and had trouble attracting buyers in an industry dominated by Airbus and Boeing Co.
And there’s likely more divestitures to come. Alstom and Bombardier could reach an agreement as early as this week, though talks could still be delayed or fall apart, according to people familiar with the matter. Alstom could pay about 7 billion euros (US$7.6 billion) for the rail business, Handelsblatt reported earlier, without saying where it got the information. The embattled manufacturer is also exploring the sale of its corporate-jet operation to Textron Inc., maker of Cessna planes, the Wall Street Journal reported Feb. 4.
The Montreal-based company sold its turboprop-plane business to Longview Aviation Capital Corp. last year, and has agreements in place to offload its regional-jet operation and a wing plant in Northern Ireland. Those deals are on track to close in the first half of 2020, the company said in a statement Thursday as it reported a loss in line with expectations.
Airbus is paying US$591 million to Bombardier to raise its stake to 75 per cent. That, combined with the other aerospace divestitures, will bring in more than US$1.6 billion in cash and eliminate almost US$2 billion in liabilities, according to the statement.
With positive free cash flow and the A220 divestiture, there are some positive elements for this “show me” story, Stephen Trent and Brian Roberts, analysts at Citigroup Global Markets, said.
“Assuming that this smaller company now generates cash, it remains to be seen whether Bombardier further monetizes its remaining businesses, a potential positive catalyst – and a US$52.1 billion firm order book might be a good place to start the conversation,” the analysts said.
The deal keeps about 3,300 Airbus jobs in Quebec while boosting the provincial government’s share in the A220 to 25 per cent from 16 per cent for no cash. While Premier Francois Legault kept his promise not to add to the US$1 billion his predecessor had poured into the plane less than four years ago, it’s unclear how much of upcoming costs his government will shoulder. Bombardier said its future capital requirements for the single-aisle plane were estimated at US$700 million.
“We are incredibly proud of the many achievements and tremendous impact Bombardier had on the commercial aviation industry,” Bellemare said in the statement. “We are equally proud of the responsible way in which we have exited commercial aerospace, preserving jobs and reinforcing the aerospace cluster in Quebec and Canada.
Any rail deal will also get Quebec involved as the Caisse de Depot et Placement du Quebec, the province’s influential pension fund manager, owns part of the Berlin-based train business. It spent US$1.5 billion in 2016 for the 30 per cent stake. That’s now grown into a 32.5 per cent holding after the unit’s results failed to reach the targets underlying Caisse’s investment, Bombardier said Thursday.
Bombardier reported an adjusted loss of 10 cents. Sales fell 2.3 per cent to US$4.21 billion. Analysts had expected US$4.23 billion.