Design Engineering

Bombardier shuts down plane and rail production in Canada

Beleaguered company furloughs 12,400 workers, cuts discretionary spending.

March 24, 2020   by Christopher Reynolds, The Canadian Press

BombardierMONTREAL – Bombardier Inc. is temporarily halting production at its Canadian plants, sending 12,400 employees on unpaid leave as the plane maker suspends its 2020 financial forecast due to the COVID-19 pandemic.

The company said Tuesday it is stopping all non-essential work in the country, including aircraft and rail production in Quebec – where 9,000 workers are heading home – and Ontario.

The shutdown – set to start Tuesday evening and continue until April 26 – comes in response to orders by the Quebec and Ontario governments on Monday to suspend non-essential activities as part of an effort to stem the spread of the novel coronavirus.

The stoppage will be in effect nearly two weeks longer than Quebec’s required break, which runs until April 13.

“We give ourselves two weeks to relaunch everything,” said Bombardier spokesperson Olivier Marcil. “The supply chain will have to adapt.”

Bombardier, which carries a hefty debt despite multiple asset sales over the past five years, has cut all discretionary spending and “is pursuing additional measures to enhance liquidity,” chairman Pierre Beaudoin said in a statement.

The Montreal-based firm, reduced to a single revenue stream after announcing the sale of its rail division to French train giant Alstom SA last month, may face falling demand for new business jets amid the broader economic slowdown triggered by the outbreak.

The sale – essential to pay down Bombardier’s US$9.3 billion debt – once again shrank a company that a year ago boasted three major divisions – commercial aircraft, trains and business jets.

“It’s hard to see demand for new business jets holding up,” Financial Bank analyst Cameron Doerksen said in a phone interview Friday.

The COVID-19 crisis is dragging down corporate profits and equities markets, which both correlate strongly with demand for private planes, said Richard Aboulafia, an aviation analyst with Teal Group in the Washington, D.C., area.

Last week, Financial Bank lowered its delivery forecast for Bombardier business jets to 145 planes from 154 this year, and to 120 planes from 150 for 2021. The backlog for the Global 7500 – Bombardier’s new, ultra-long-range business jet listed at US$73 million apiece – remains healthy, with the aircraft sold out through 2022.

“The bigger issue is going to be the supply chain, because they’re very complicated pieces of equipment with hundreds if not thousands of suppliers,” said AltaCorp Capital analyst Chris Murray, noting the ripple effect of plummeting travel demand for manufacturers.

Looming on the horizon are debt maturities of US$1.48 billion and US$1.7 billion due in 2021 and 2022 respectively. About 60 per cent of the US$9.32-billion total debt is due within five years.

The US$8.2-billion deal with Alstom and other recent transactions will leave Bombardier with net proceeds of between US$4.2 billion and US$4.5 billion after deducting the Caisse de Depot et Placement’s equity position, as well as adjustments for debts and other liabilities, Bombardier said in February.

The deal is expected to close in the first half of 2021 if it can move through European Union regulatory hurdles.

While competition rules remain a hazard, “governments may think of it as a way to strengthen that part of the industrial landscape by completing the transaction,” Murray said.

Meanwhile delays and “some volatility” continue to plague several “large, challenging” rail contracts, said Alain Bellemare last month, shortly before his ouster as CEO announced on March 11.

Bombardier shares have hit new lows over the past week, hovering between 38 and 50 cents at their cheapest price in decades.

In the Montreal area, the affected factories sit in Mirabel, Saint-Laurent, Dorval and Pointe-Claire, and east of Quebec City in La Pocatiere.

Bombardier’s aerostructures plant in Belfast, Northern Ireland, will also temporarily cease operations until April 20, with the majority of its 3,300 site workers returning home. Last week, the factory in Cespin, France, that specializes in rolling stock had to cease operations until further notice.

Executives as well as workers are forgoing pay, Bombardier said Tuesday. Board members have also agreed to forgo compensation for the remainder of the year.

Bombardier’s now suspended outlook from last month had projected revenue growth to US$15 billion from US$13.7 billion in 2019. The company also forecasted margins for earnings before interest and taxes of 3.5 per cent. Both figures fell below analyst expectations.

The multinational continues to work on closing the US$550-million divestiture of its CRJ region jet program to Mitsubishi and the US$500-million sell-off of its aerostructures business in Belfast and Morocco to Spirit AeroSystems, both of which were initially expected in the first half of 2020.
www.bombardier.com


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