Bombardier slashes earnings forecast on challenging rail projects
Bombardier Inc. tumbled the most on record after warning on fourth-quarter results and saying it could pull out of the joint venture with Airbus SE that makes the A220 jetliner.
Bombardier, which sold control of the A220 to Airbus in 2018 as part of a long-running drive to raise cash and put it on a solid footing, said the venture needed more investment and might be subject to a writedown in fourth quarter results next month.
It also indicated it could pull out of the joint venture with Airbus SE that makes the A220 jetliner as the program’s costs increase.
The shares plunged 32 per cent to $1.22 at 9:34 a.m. in Toronto after sliding as much as 36 per cent for the biggest drop on record.
Bombardier now expects 2019 adjusted earnings before interest and taxes (EBIT) to be about US$400 million, compared with a previously forecast range of between US$700 million and US$800 million.
Free cash flow for 2019 is expected to be negative US$1.2 billion, much lower than previously forecast negative US$500 million.
Bombardier is in the middle of a broader restructuring, focusing on its more profitable business jet and rail units.
It said delivery of four of its Global 7500 jets had now slipped into the first quarter of 2020 and that it now expected to deliver 11 Global 7500 in 2019 compared with a previously forecast range of between 15 and 20.
Investors and analysts see deliveries of the business jet, which lists for US$73 million, as an important revenue driver for Bombardier.
The company said it also expects the timing of milestone payments and new orders at its Transportation unit to weigh on 2019 results.
The company added it expects to incur a charge of about US$350 million in the fourth quarter related to certain UK projects, negotiations with the Swiss Federal Railways (SBB) and higher production costs in Germany.
Reassessing Airbus A220 Partnership
Bombardier said a ramp-up in production at the Airbus Canada Ltd. Partnership that manufacturers the plane will require additional cash investment, pushing back the break-even point and generating lower returns across the lifetime of the project.
As a result, and following its exit from other commercial aerospace activities, Bombardier is “reassessing its ongoing participation” in the A220, the Montreal-based business said in an earnings update. The value of the joint venture is also likely to be diminished and Bombardier will disclose the amount of any writedown when it reports final 2019 results.
Airbus said in response to questions that it will continue funding the A220 program “on its way to break-even.” The European planemaker took control of Bombardier’s C Series model in 2018, renaming it the A220 in line with other models. It owns a 50.01 per cent stake in the regional jet, with the Canadian company holding 31 per cent, and state-backed Investissement Quebec some 19 per cent.
Bombardier spent over US$6 billion developing the C-Series, equipping it with fuel-efficient engines, composite wings and larger than usual windows. The program ran more than two years late and about US$2 billion over budget.
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 at its Mobile, Alabama, plant this year.