Bombardier back to brink after rethinking A220 deal

Bloomberg

Bombardier Inc’s deal with Airbus SE to rescue its long-delayed and over-budget jetliner programme 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 programme 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 programme, formerly known as the C Series, could be another blow to Bombardier’s efforts to increase cash flow to help pay down its $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 programme delays and cost overruns sent the investment soaring to $6 billion, raising concerns about the debt, now rated six levels below investment grade.
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 $1 billion for a 49% stake in the C Series.
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.
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 programme 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 $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.