Air Transat (TS, Montréal Trudeau) retired all three of its remaining A310-300(ET)s at the end of March.
The type’s last revenue flight was operated on March 30, when C-GSAT (msn 600) flew from Porto via Halifax to Toronto Pearson. The aircraft subsequently joined the other two A310s, C-GPAT (msn 597) and C-GTSY (msn 447), in storage at Montréal Mirabel.
The airline has since confirmed in a statement to ch-aviation that the A310-300s have indeed been permanently withdrawn from service and will not be reactivated after the COVID-19 pandemic.
Air Transat was planning to retire the A310s over the coming months as its new A321-200neo(LR)s deliver from Airbus (AIB, Toulouse Blagnac).
A sad sight! Here we have the 4th Air Transat A310 to be retired, here she is departing Montreal for the very last time on a short ferry flight to Mirabel where she will be scrapped! Air Transat is the last North American airline to still operate the A310 commercially but that will change by the end of the year.
Active (As of Jan 2020) C-GPAT, C-GSAT, C-GTSY, C-GTSW
They have said that they will retire there entire fleet by the end of 2020, so you better catch them while you can! History of C-GTSH: Built in 1991, and delivered to Lufthansa in 1992 before being sold to Air Transat in 2004. This aircraft is 28 years old and has 2 x GE CF6-80C2A2.
ALLISON LAMPERT, MONTREAL, REUTERS – FEBRUARY 20, 2020
Airbus SE plans to invest between 500 million euros and 1 billion euros (C$715-million and C$1.43-billion) this year on its A220 passenger jet program, chief executive Guillaume Faury said on Thursday at the company’s A220 factory in Mirabel, just outside Montreal.
Earlier in February, Airbus raised its stake in the A220 program – known as Airbus Canada – to 75 per cent from 50.1 per cent after teaming up with the government of the Canadian province of Quebec to buy Bombardier’s 33.5 per cent stake.
With the deal, Bombardier exited the civil aviation industry and bolstered the European planemaker’s position in its ongoing competition with U.S. rival Boeing Co.
The A220, previously known as the C Series, is a 110-130 seater aircraft, a little smaller than Airbus’s mainstay A320 jet.
Airbus has been ramping up production of the A220 towards its maximum monthly capacity rate of 10 at its facility in Mirabel and to a monthly rate of four in Mobile, Ala., targets it hopes to reach by the middle of this decade.
Production in the United States has become more important for Airbus since the U.S. government slapped tariffs on jets made in Europe for purchase by U.S. airlines following a years-long tariff dispute.
Provided by Innovation, Science and Economic Development Canada/CNW
OTTAWA, Feb. 13, 2020 /CNW/ – The Honourable Navdeep Bains, Minister of Innovation, Science and Industry, made the following statement regarding Airbus’ increased stake in the A220 aircraft program.
“Our government has been steadfast in its support for the Canadian aerospace industry and its workers.
“We welcome any investment in Canada’s vibrant aerospace sector and its skilled workforce. Aerospace is one of the most innovative and export-driven industries in Canada, having contributed over $25 billion in GDP and more than 210,000 jobs to Canada’s economy in 2018.
“We have been in communication with Bombardier, the Government of Quebec and the CEO of Airbus, and we will continue to engage with all relevant parties to ensure that previous commitments are honoured. We also welcome the announcement of 3,300 jobs being secured in Quebec. This is a recognition of Canada’s world-class aerospace workers and demonstrates a commitment to supporting Canadian expertise and growing this important sector.”
Exit of commercial aerospace completed with sale of remaining interest in A220 partnership for ~$600M cash proceeds and the elimination of future investments of ~ $700M(1)
Pro Forma(1)cash on-hand of more than $4B, including all previously announced transactions, enhancing financial position
Company continuing to actively pursue strategic options to accelerate deleveraging
Fourth quarter, and full-year results in line with preliminary results previously announced
2020 consolidated outlook: double-digit organic revenue growth(3) to more than $15B(1)
2020 consolidated adjusted EBITDA margin(2) expected at ~ 7.0%, adjusted EBIT margin(2) expected at ~3.5%(1)
2020 consolidated free cash flow(2) expected to be positive, excluding Residual Value Guarantee (RVG) payments(1)
MONTRÉAL, Feb. 13, 2020 (GLOBE NEWSWIRE) — Bombardier (TSX: BBD.B) today reported its fourth quarter and full year 2019 results, in line with previously announced preliminary results. The company also confirmed it is still actively pursuing options to accelerate deleveraging, strengthen its balance sheet and enhance shareholder value.
Sale of A220 Partnership Interest
Bombardier has entered into an agreement with Airbus SE and the Government of Quebec, under which Bombardier transferred its shares in the Airbus Canada Limited Partnership (ACLP) to Airbus and the Government of Quebec, improving Bombardier’s cash position. This includes cash proceeds of ~$600 million from Airbus, of which $531 million was paid upon closing with the balance to be paid over 2020-21, and the elimination of all future capital requirements for the A220 program, estimated at ~ $700 million.(1)
Bombardier will also transfer aerostructures activities and employees supporting the A220 and A330 in St-Laurent, Québec to Airbus subsidiary Stelia Aerospace. Finally, the agreement provides for the cancelation of 100,000,000 Bombardier warrants owned by Airbus.
Bombardier’s decision to sell its stake in the A220 partnership completes its exit from commercial aerospace, a significant undertaking. In 2016, Bombardier’s commercial aerospace business lost approximately $400 million and was consuming approximately $1 billion in cash. Addressing this challenging portfolio was a fundamental step in the Company’s turnaround plan.
“We are incredibly proud of the many achievements and tremendous impact Bombardier had on the commercial aviation industry,” said Alain Bellemare, President and Chief Executive Officer, Bombardier Inc. “We are equally proud of the responsible way in which we have exited commercial aerospace, preserving jobs and reinforcing the aerospace cluster in Québec and Canada. And, we are confident that the A220 program will enjoy a long and successful run under Airbus’ and Québec’s stewardship.”
Acceleration of Deleveraging Phase of Turnaround
The sale of our interest in the ACLP, combined with the previously announced aerospace divestitures, will generate more than $1.6 billion in cash proceeds and eliminate close to $2 billion in liabilities and future commitments. Liquidity remains strong, with Pro Forma cash-on-hand of more than $4 billion and $5.5 billion in liquidity, providing the necessary flexibility to complete the turnaround. Both the CRJ program sale to Mitsubishi Heavy Industries, Inc. and sale of the aerostructures business to Spirit AeroSystems, Holding Inc. are expected to close in the first half of 2020.(1)
As previously announced, the Company is actively pursuing options that would allow it to accelerate deleveraging, paydown debt and position the business for long-term success with greater operating and financial flexibility. This process remains ongoing, however the company does not intent to provide any further updates at this time.
Overview Financial Performance
Bombardier’s consolidated revenues for the year were $15.8 billion, highlighted by an 8.5% growth in business aircraft activities. The growth in Aviation revenues were offset by the lower contribution from commercial aircraft businesses following their divestitures. Revenues at Transportation also decreased, mainly due to contract estimate revisions.
Consolidated adjusted EBITDA and adjusted EBIT for the year were $896 million and $470 million, respectively, reflecting (i) improvements at Aviation as it exits underperforming commercial programs and ramps-up production on the Global 7500 aircraft; and (ii) additional charges and investments at Transportation to complete challenging projects. Reported EBIT loss for the year of $498 million includes a $1.6B impairment charge related to the ACLP investment.
Fourth quarter cash generation reached $1.0 billion, reducing free cash flow usage to $1.2 billion for the year. Higher than anticipated cash usage was driven by additional investments made to address challenging rail projects, as well as, the deferral of deliveries, mainly at Transportation. Cash usage from operating activities amounted to $680 million for the full year.
Revenues from our sustaining business aircraft and Transportation activities in 2020 are expected to grow organically by double-digit percentage over the $13.7 billion revenues recorded from these businesses in 2019(1). This strong growth is driven mainly from the acceleration of Global 7500 deliveries contributing to a total of 160 aircraft or more for the year at Aviation. The consolidated revenue growth is also supported by the ongoing production ramp-up of Transportation, driven by the solid orders from the past few years.
Adjusted EBITDA and adjusted EBIT are expected to increase to approximately 7.0% and 3.5% respectively, mainly from the acceleration of Global 7500 deliveries at Aviation and gradual margin normalization at Transportation. The adjusted EBIT margin expansion includes a higher amortization expense as Global 7500 deliveries increase. The full year outlook for earnings reflects the partial year contribution from ongoing divestitures of the CRJ program and Aerostructures businesses.(1)
Free cash flow is expected to be positive in 2020, excluding Credit and RVG payments. These residual liabilities related to the exit of commercial aircraft are estimated to be approximately $200 million for the year and are expected to be paid from the CRJ transaction proceeds.(1)
Stronger Financial Performance as Aviation Reshapes its Portfolio
Revenues for Aviation totalled $7.5 billion for 2019. This reflects an 8.5% revenue growth from business aircraft activities and continued double-digit organic growth from aftermarket.
The segment achieved 175 aircraft deliveries during the year, comprised of 54 Global, 76 Challenger, 12 Learjet, as well as 33 commercial aircraft. ° The fourth quarter’s activity level was high, with deliveries reaching 52 business aircraft as Global 7500 deliveries accelerated.
Adjusted EBITDA margin was 10.8% for the year, up 200 bps driven by the exit of the Q400 and C Series programs. This profitability was nonetheless diluted in 2019 by CRJ activities, accounting for $1.2 billion in revenues for the year.
The adjusted EBIT margin of 7.1% is up 70 bps year-over-year, reflecting the early production ramp up and higher amortization associated with Global 7500 deliveries, as well as the dilution from commercial aircraft activities.
Business aircraft backlog increased slightly for the second consecutive year, reaching $14.4 billion at year end, while the CRJ backlog declined as production winds down.
Concentrating on Business Aircraft while Addressing Underperforming Programs
In February 2019, the Corporation acquired the Global 7500 aircraft wing program operations and assets from Triumph Group Inc. This transaction enabled the company to leverage its extensive technical expertise to support the ramp-up of the Global 7500 aircraft and secure its long-term success.
In March 2019, we concluded the sale of Business Aircraft’s flight and technical training activities to CAE Inc. for net proceeds of $532 million.
In May 2019, we completed the previously announced sale of the Q Series program assets, including aftermarket operations and assets, to De Havilland Aircraft of Canada for net proceeds of $285 million.
In June 2019, the Corporation entered into a definitive agreement with Mitsubishi Heavy Industries, Ltd (MHI) for the sale of its regional jet program for a cash consideration of $550 million payable upon closing, and the assumption by MHI of approximately $200 million of liabilities related to credit and residual value guarantees and lease subsidies. The transaction is currently expected to close by mid-year 2020 and remains subject to regulatory approvals and customary closing conditions.
In October 2019, the Corporation and Spirit AeroSystems Holding, Inc. (Spirit) announced that they have entered into a definitive agreement, whereby Spirit will acquire Bombardier’s aerostructures activities and aftermarket services operations in Belfast, U.K. and Casablanca, Morocco, and its aerostructures maintenance, repair and overhaul facility in Dallas, U.S. for a cash consideration of $500 million and the assumption of approximately $700 million of liabilities, including government refundable advances and pension obligations. The transaction is expected to close by mid-year 2020 and remains subject to regulatory approvals and customary closing conditions.
Positioned for Growth through certification and ramp up of New Programs and Service Network Expansion
Reaching full-scale production of the class-defining Global 7500 aircraft. With increased deliveries, the Global 7500 aircraft is expected to contribute significantly to revenues growth in 2020. As the aircraft progresses on the learning curve, it will also contribute to margin expansion.
Certified the new Global 5500 and Global 6500 aircraft, followed by the entry into service of the Global 6500 aircraft in 2019, offering customers the perfect combination of range, speed, field performance and smooth ride.
Continued and consistent growth of the aftermarket business, with further expansion of the service network in Singapore planned for 2020.
Bombardier transfers its remaining interest in Airbus Canada Limited Partnership (Airbus Canada) to Airbus SE and the Government of Québec
Airbus now holds 75 percent of Airbus Canada with the Government of Québec increasing its holding to 25 percent for no cash consideration
Bombardier work packages for the A220 and A330 will be transferred to Airbus, through its subsidiary Stelia Aerospace, securing 360 jobs in Québec
Bombardier will receive US$591M, net of adjustments, of which US$531M was received at closing, and is released of its future funding capital requirement to Airbus Canada
Over 3,300 Airbus jobs secured in Québec
AMSTERDAM, Netherlands and MONTREAL, Feb. 13, 2020 (GLOBE NEWSWIRE) — Airbus SE (EPA: AIR), the Government of Québec and Bombardier Inc. (TSX: BBD.B) have agreed upon a new ownership structure for the A220 programme, whereby Bombardier transferred its remaining shares in Airbus Canada Limited Partnership (Airbus Canada) to Airbus and the Government of Québec. The transaction is effective immediately.
This agreement brings the shareholdings in Airbus Canada, responsible for the A220, to 75 percent for Airbus and 25 percent for the Government of Québec respectively. The Government’s stake is redeemable by Airbus in 2026 – three years later than before. As part of this transaction, Airbus, via its wholly owned subsidiary Stelia Aerospace, has also acquired the A220 and A330 work package production capabilities from Bombardier in Saint-Laurent, Québec.
This new agreement underlines the commitment of Airbus and the Government of Québec to the A220 programme during this phase of continuous ramp-up and increasing customer demand. Since Airbus took majority ownership of the A220 programme on July 1, 2018, total cumulative net orders for the aircraft have increased by 64 percent to 658 units at the end of January 2020.
“This agreement with Bombardier and the Government of Québec demonstrates our support and commitment to the A220 and Airbus in Canada. Furthermore it extends our trustful partnership with the Government of Québec. This is good news for our customers and employees as well as for the Québec and Canadian aerospace industry,” said Airbus Chief Executive Officer Guillaume Faury. “I would like to sincerely thank Bombardier for the strong collaboration during our partnership. We are committed to this fantastic aircraft programme and we are aligned with the Government of Québec in our ambition to bring long-term visibility to the Québec and Canadian aerospace industry.”
“I am proud that our government was able to reach this agreement. We have succeeded in protecting paying jobs and the exceptional expertise developed in Québec, despite the major challenges we faced in this regard when we took office. We have consolidated the government’s position in the partnership, while respecting our commitment not to reinvest in the program. By opting to strengthen its presence here, Airbus has chosen to focus on our talents and our creativity. The decision of an industrial giant like Airbus to invest more in Québec will help attract other world-class prime contractors,” the Premier of Québec, François Legault, stated.
“This agreement is excellent news for Québec and its aerospace industry. The A220 partnership is now well established and will continue to grow in Québec. The agreement will allow Bombardier to improve its financial situation and Airbus to increase its presence and footprint in Québec. It’s a win–win situation for both the private partners and the industry,” pointed out Pierre Fitzgibbon, Minister of the Economy and Innovation.
With this transaction, Bombardier will receive a consideration of $591M from Airbus, net of adjustments, of which $531M was received at closing and $60M to be paid over the 2020-21 period. The agreement also provides for the cancellation of Bombardier warrants owned by Airbus, as well as releasing Bombardier of its future funding capital requirement to Airbus Canada.
“This transaction supports our efforts to address our capital structure and completes our strategic exit from commercial aerospace,” said Alain Bellemare, President and CEO Bombardier, Inc. “We are incredibly proud of the many achievements and tremendous impact Bombardier had on the commercial aviation industry. We are equally proud of the responsible way in which we have exited commercial aerospace, preserving jobs and reinforcing the aerospace cluster in Québec and Canada. We are confident that the A220 program will enjoy a long and successful run under Airbus’ and the Government of Québec’s stewardship.”
The single aisle market is a key growth driver, representing 70 percent of the expected global future demand for aircraft. Ranging from 100 to 150 seats, the A220 is highly complementary to Airbus’ existing single aisle aircraft portfolio, which focuses on the higher end of the single-aisle business (150-240 seats).
As part of the agreement, Airbus has acquired the Airbus A220 and A330 work package production capability from Bombardier in Saint-Laurent, Québec. These production activities will be operated in the Saint Laurent site by Stelia Aéronautique Saint Laurent Inc., a newly created subsidiary of Stelia Aerospace, which is a 100 percent Airbus subsidiary.
Stelia Aéronautique Saint-Laurent will continue the production of the A220 cockpit and aft fuselage production, as well as A330 workpackages, for a transition period of approximately three years at the Saint-Laurent facility. A220 workpackages will then be transferred to the Stelia Aerospace site in Mirabel to optimize the logistical flow to the A220 Final Assembly Line also located in Mirabel. Airbus plans to offer all current Bombardier employees working on the A220 and A330 work packages at Saint-Laurent opportunities around the A220 programme’s ramp-up, ensuring know-how retention as well as business continuity and growth in Québec.
At the end of January 2020, 107 A220 aircraft were flying with seven customers on four continents. In 2019 alone, Airbus delivered 48 A220s, with the further ramp-up to be continued.
Bombardier Inc. is pulling out of its joint venture with Airbus SE in a bid to save cash, closing the book on its failed big-league commercial aerospace ambitions as it reported a US$1.7-billion net loss for its latest quarter.
The Montreal-based multinational, which is working to sell one of its two big business units to fix an over-extended balance sheet, said Thursday it will exit a venture known as Airbus Canada Limited Partnership that builds the European plane maker’s A220 single-aisle jet.
The plane is the former C Series airliner developed by Bombardier at a cost of more than US$6-billion.
Airbus will pay Bombardier about US$600-million to increase its share in the venture to 75 per cent from just over 50 per cent and relieve Bombardier of further capital commitments in the program worth US$700-million, the companies said in a statement Thursday. The Quebec government will boost its share in the venture to 25 per cent from about 16 per cent for no cash consideration.
“This makes life easier for Airbus,” said Addison Schonland, an analyst at boutique aerospace consultancy AirInsight. “[Now they have] only one partner to consider.”
Investors and analysts had been anticipating the move after Bombardier issued a profit warning last month and said it was reassessing its ongoing participation in the venture amid the prospect of a delayed break-even timeline and lower returns.
The agreement, which takes effect immediately, brings to an end Bombardier’s involvement in commercial aerospace. It also marks a bitter end for the company’s effort to break the global commercial airliner duopoly held by Airbus and Boeing with the C Series.
The C Series, a single-aisle plane seating 100 to 150 people, was years late to market as well as over-budget and Bombardier misjudged how aggressive its rivals would be in trying to undermine its success. The effort left Bombardier hamstrung with more than US$9-billion in long-term debt that has triggered its slow breakup.
Over the past five years under Chief Executive Alain Bellemare, Bombardier has sold its waterbomber business, its Q400 turboprop unit, its CRJ regional jet franchise and its flight training business among other assets. Most important, it handed control of its cutting-edge C-Series airliner, now rebaptized the A220, to Airbus for a nominal sum in 2018.
The A220 is being hailed by operators and travellers alike for its quiet operation, fuel efficiency and cabin features. Since taking over the jet program, Airbus has generated cumulative orders of 658 units for the plane as of the end of January, 2020.
In recent weeks, Airbus asked Bombardier and Quebec, the third partner in the venture, to put more money into the partnership to fund a production increase. In the end, Bombardier decided it was unwilling to given its cash flow issues.
The agreement with Airbus is a largely a win for the government of Premier François Legault, who manage to secure more than 3,300 aerospace jobs in the province and protect its previous US$1-billion investment in the A220 venture. Although Quebec does not have to pay to increase its stake, it is understood to be responsible with Airbus for future funding for the program.
As part of the deal, Airbus has bought Bombardier’s work package production capability on the Airbus A220 and A330 jets. Airbus can buy out Quebec’s share in 2026, three years later than originally planned.
The announcement came as Bombardier reported a US$1.7-billion net loss for the fourth quarter of fiscal 2019 on revenue of US$4.2-billion. The company is struggling to complete several major rail contracts and has absorbed cost overruns and late-delivery penalties that have sucked up cash.
Nevertheless, the manufacturer said Thursday it has enough financial flexibility to complete its turnaround. It said it has pro forma cash on hand of more than US$4-billion and US$5.5-billion in liquidity.
The company is running simultaneous sets of talks in Europe and North America on selling either its rail or luxury-jet unit, according to information gathered by The Globe and Mail. Discussions have been held with France’s Alstom SA and Japan’s Hitachi on the train side and U.S. conglomerate Textron Inc. and private equity giant Carlyle Group on the plane side, sources confirmed.
The company has confirmed only that it is pursuing options that would allow it to pay down debt and fix its capital structure. It said Thursday the process remains ongoing but provided no update.
News provided by the Toronto Star – link to full story and updates
By Brendan Case, Bloomberg Fri., Feb. 7, 2020
Bombardier Inc.’s ill-fated foray into building jetliners may be nearing an end, and investors are applauding.
The company is in advanced talks to sell its stake in Airbus SE’s A220 program to the European aerospace giant, the Wall Street Journal reported Friday.
A deal for Bombardier’s 34 per cent holding in the venture could be reached as early as next week, the newspaper said, citing people familiar with the matter.
Quebec, which owns 16 per cent of the program, would retain its stake.
Walking away from the A220 would close the book on Bombardier’s involvement in an aircraft program in which the company invested more than $6 billion (U.S.) amid a series of development delays and cost overruns.
Bombardier, creaking under heavy debt and struggling to sell the all-new single-aisle plane, ceded control of the program to Airbus in 2018 while retaining a minority participation.
Financial terms of the Airbus-Bombardier deal couldn’t be learned, the Journal said.
The talks could still fall apart and the outlines of any agreements could change, the newspaper said.
Both companies are scheduled to report earnings Feb. 13.
Bombardier climbed 4.5 per cent to $1.49 (Canadian) at 3:34 p.m. in Toronto, reversing losses after the Journal’s story.
A sale of the company’s stake in the A220, which was originally known as the C Series, would also be a milestone for cash-strapped Bombardier as it weighs selling other key businesses in a potentially far-reaching revamp. Saddled with a $10-billion (U.S.) debt load, the Montreal-based company has held talks to combine its rail-equipment operation with France’s Alstom SA. It’s also exploring a sale of its private-jet unit to Textron Inc., the Journal reported earlier this week.Get more business in your inboxGet the business news and analysis that matters most every morning in our Star Business email newsletter.
Quebec has no appetite for a fresh cash injection in the joint venture that builds the A220 jetliner, Premier François Legault said.
FRÉDÉRIC TOMESCO Updated: January 29, 2020
Quebec has no appetite for a fresh cash injection in the Airbus SE-led joint venture that builds the A220 jetliner at the former Bombardier Inc. factory in Mirabel, Premier François Legault said.
“It’s out of the question that we invest in this division,” Legault told reporters in Quebec City. He once again criticized the decision made by former Liberal premier Philippe Couillard to plough money into the aircraft program — formerly known as the C Series — instead of buying a stake in Bombardier.
Legault spoke a day after Economy Minister Pierre Fitzgibbon said Quebec was working with the companies to find ways of preserving aerospace jobs as well as the province’s US$1-billion investment in the A220. Fitzgibbon said he was hopeful of reaching a deal within about 10 days.
Bombardier is reassessing its ongoing involvement in the A220 venture. It vowed two weeks ago to disclose the amount of any write-down connected with the partnership when it reports financial results next month.
Quebec will need to write down the value of its own investment in the program, Legault said. He wouldn’t provide a figure, saying the government is still crunching the numbers.
In the meantime, Quebec is “following the file very closely,” the premier added. “We’re talking with the company, we’re talking with the Caisse de dépôt, we’re talking with eventual partners.”
With files from the Montreal Gazette’s Philip Authier
The Street Bombardier slashes outlook; pursues ways to boost balance sheetBombardier is cutting its full-year revenue and adjusted profit forecasts and warning of much deeper cash burn, mostly tied to setbacks in its rail division. The company is also considering pulling out of its A220 partnership with Airbus. Chris Blumas, portfolio manager at GlobeInvest Capital Management, weighs in on what he calls a “pretty dramatic turn of events.”
Bombardier slashes outlook; pursues ways to boost balance sheet
Bombardier Inc.’s deal with Airbus SE to rescue its long-delayed and over-budget jetliner program was supposed to be a lifeline for the struggling manufacturer. Now the Canadian company is rethinking the joint venture, pushing the iconic train and plane maker to the brink once more.
The shares posted their biggest loss ever — Bombardier is almost a penny stock again — and bonds tumbled after the company said it was reassessing the A220 jet program with Airbus. Costs for the new plane are rising, and the goal of breaking even may come later than expected, likely prompting a writedown when Bombardier reports earnings next month.
“The joke continues,” said John O’Connell, chief executive officer of Toronto-based Davis Rea Ltd. “This company has been a disaster my whole career and I’m almost ready to retire.”
The possible retreat from the A220 program, formerly known as the C Series, could be another blow to Bombardier’s efforts to increase cash flow to help pay down its US$10 billion debt load. The company has already sold assets in recent years to tackle its debt, including pending deal for its CRJ jet unit with Mitsubishi Heavy Industries Ltd.
The C Series was originally pitched as a major breakthrough for Bombardier, providing a plane that was bigger than its traditional jets yet generally smaller than Airbus’s workhorse A320-family jets and Boeing Co.’s 737 planes. Yet program delays and cost overruns sent the investment soaring to US$6 billion, raising concerns about the debt, now rated six levels below investment grade.The Open Bombardier needs to ‘just deliver’ what they promise: McGill’s Karl Moore Bombardier needs to ‘just deliver’ what they promise: McGill’s Karl Moore
Karl Moore, professor of business strategy at McGill University, joins BNN Bloomberg to react to Bombardier slashing its outlook, warning on cash burn and considering pulling out of the A220 partnership with Airbus. He says that CEO Alain Bellemare has done an excellent job in a tough turnaround for the business.
The delays and slow sales forced Bombardier to announce thousands of jobs cuts in 2016, with doubts over the future of the company pushing the stock to as low as 72 cents. The government of Quebec was forced to step in, investing US$1 billion for a 49 per cent stake in the C Series.
On Thursday, Bombardier tumbled anew, dropping 32 per cent to $1.22 at the close in Toronto. The shares are now at the lowest level in almost four years and the company’s market value is only about $3 billion (US$2.3 billion)..
The deal with Airbus was an elegant solution. Though Bombardier received no upfront cash for ceding its controlling stake, it allowed Bombardier to offload the risk and additional costs of developing the A220. But the latest financial plan calls for more cash to support the ramp-up, pushes out the break-even timeline, and generates a lower return over the life of the program, Bombardier said in a statement Thursday.
With few other assets left to sell, Bombardier may struggle to keep everything going. One of its two remaining businesses — rail equipment and private jets — may have to go, Karl Moore, an associate professor at McGill University in Montreal, said in an interview with BNN Bloomberg.
“Then you become a pure play of either transportation on the train side, or business jets,” he said. “It’s a big dramatic move for sure but one that might be necessary to solve the cash flow issue. I think that’s the question they’re giving some serious thought to right now.”
The potential end of Bombardier’s involvement in the A220 program is combining with continued woes in the company’s rail business to undermine a once-great name in manufacturing.
The company said fourth-quarter sales would be US$4.2 billion, trailing the lowest analyst estimate in a survey by Bloomberg. The results were dragged down in part by new challenges in the company’s rail division. Bombardier said it would take a US$350 million accounting charge because of problems in London, Switzerland and Germany.
Liquidity remains strong, with year-end cash on hand of roughly US$2.6 billion, Bombardier said. But the company is considering alternatives to accelerate its deleveraging and strengthen its balance sheet.
“The final step in our turnaround is to de-lever and solve our capital structure,” Chief Executive Officer Alain Bellemare said in the statement. “We are actively pursuing alternatives that would allow us to accelerate our debt paydown.”
For Mark Carpani, a partner at Ridgewood Capital Asset Management, a larger selloff on the bonds could be a buying opportunity.
“Despite the equity reaction, the debt has a high probability of being paid in the short term,” he said.
The company’s 7.85 per cent bonds due 2027 fell 6.8 cents, the most on record but remain well above distressed levels at 95.3 cents on the dollar, yielding 8.8 per cent, according to Trace data. The US$1.5 billion in notes due 2025 dropped 5.7 cents to 96.3 cents on the dollar to yield 8.4 per cent, the highest since Oct. 31.
The company is scheduled to report full earnings Feb. 13.
Airbus said it would continue funding the A220 program “on its way to break-even.” The European aerospace giant owns a 50.01 per cent stake in the regional jet, with Bombardier retaining 31 per cent and state-backed Investissement Quebec holding some 19 per cent.
Bombardier agreed to fund cash shortfalls for the program up to a maximum of $350 million in 2019, and $350 million cumulatively in 2020 and 2021, according to a press release announcing the venture in June 2018. Any excess shortfalls would be shared by the shareholders, the statement said.
Quebec’s economy and innovation minister declined to comment, according to a representative.
The jet added 63 orders in 2019, with 105 currently in service and a backlog of close to 500 planes. Airbus will begin producing the A220 on a second assembly line this year at its factory in Mobile, Alabama.
One year ago, Airbus executives in Canada laid out broad strokes of a plan to make the A220 a commercial success.
Chief among the company’s goals: to boost A220 production, land sales with major airlines, reduce costs and, ultimately, make A220s profitable.
One year later, the production rate is up and several major airlines have signed purchase papers.
The degree to which Airbus has achieved cost and profitability goals, however, remains unclear. But Airbus Canada chief executive Philippe Balducchi insists the A220 programme is progressing as expected.
“The journey to get the cost down has started [and] is on [a] good track,” Balducchi tells FlightGlobal on 15 January, adding that Airbus expects to achieve more cost reductions “in the coming months and year”.
“We are on the normal path of an aircraft programme at this stage,” adds Balducchi, who spoke at an event in Montreal during which Air Canada unveiled its first A220-300.
Takeoff of Air Canada’s first A220, which the airline received from Airbus on 20 December 2019.
In January 2019, about six months after Airbus acquired the A220 programme from Bombardier, Balducchi described his A220 goals during a media event in Montreal.
He pledged to make the A220 profitable and said his team had initiated a broad cost-cutting effort that included seeking concessions from suppliers. The team would also work to improve production efficiency, partly by bringing Airbus’s processes and systems to the A220.
Balducchi now says Airbus aims to reduce the A220’s cost basis by 20%.
But he declines to disclose more details or say whether the A220 is closer to profitability.
“We have been progressing on the cost reduction. We have been having some significant progress with some suppliers. Some are still under discussion,” Balducchi says.
Financials aside, the A220 programme has gained momentum under Airbus. Since acquiring the programme, then called CSeries, from a struggling Bombardier in mid-2018, Airbus has landed significant new orders – the types of sales Bombardier so badly needed.
The Airbus-led deals included the sale of 60 A220-300s to Air France-KLM, the sale of 70 A220-300s to JetBlue Airways and a deal to sell 60 jets to former JetBlue founder David Neeleman’s US upstart, known as Moxy.
Balducchi also notes Airbus has landed A220 deals with major aircraft lessors. Those include an Air Lease Corporation letter of intent to acquire 50 A220-300s and Nordic Aviation Capital’s order of 20 A220-300s. Those deals came together in 2019.
Lessor deals are “very important to accelerate the expansion of the aircraft”, Balducchi says.
When acquired by Airbus, the programme had logged some 406 orders. At the end of 2019, Airbus held 595 A220 orders, up 47%.
Airbus has made progress boosting production, having delivered 48 A220s in 2019. By comparison, the Montreal site delivered 33 A220s in 2018 and 17 in 2017.
Airbus also opened a second A220 assembly line in Mobile, Alabama, in 2018. That site will deliver its first A220 this year, the company says.
Balducchi declines to say how many A220s Airbus expects to produce this year, but notes that by mid-decade the company anticipates producing 10 A220s monthly in Montreal and four monthly in Mobile.
Balducchi insists supply chain issues are no longer stifling Airbus’s ability to get A220s out the door.
“Right now we are following a normal, pretty aggressive ramp up,” Balducchi says. “There is nothing holding back… It is a normal part of maturing [the] industrial system.”
NO WORD ON STRETCHED A220
As have other Airbus executives, Balducchi declines to discuss whether Airbus intends to develop a stretched version of the A220 commonly called the A220-500.
He says Airbus already has a full plate addressing cost and production ramp challenges it faces with the A220-100 and A220-300.
“We will propose solutions when the time has come, and the time is not now,” Balducchi says. “We will continue to listen to what the customers… want.”