Bombardier sees business-jet rebound as boost from US nears

Bloomberg

Bombardier Inc. expects that business-jet sales could rebound as soon as the second half, getting a boost from U.S. demand as the economy gains traction.
“We are confident that we are at the bottom or close to the bottom. Moving forward, it should be better,” Chief Executive Officer Alain Bellemare said in a telephone interview Thursday. “I don’t know if it’s going to be the second half of 2017 or 2018.”
Sluggish demand for private jets has weighed on the Montreal-based company as Bellemare steps up efforts to recover from two years of shrinking revenue and three straight annual losses. With Bombardier’s shares falling to a 26-year low in 2016, Bellemare announced about 14,500 job cuts to overcome cost overruns and a delay of more than two years in developing the C Series jetliner.
A comeback for private planes “depends on the U.S. economy,” Bellemare said. “As you see great earnings from large corporations in the U.S., normally there’s a direct correlation between that and business-aircraft sales.” Bombardier valued its business-jet backlog at $15.4 billion at the end of December, down from $17.2 billion a year earlier.
“Business-jet demand should benefit from the post-election stock surge and shift away from Obama’s anti-bizjet rhetoric,” Cowen & Co. analyst Cai von Rumohr said in a note to clients.
Bombardier on Thursday reported an adjusted loss of 7 cents a share for the fourth quarter as sales fell in the company’s biggest divisions: business aircraft and trains. The figure fell short of the 3-cent average estimate in a Bloomberg survey of analysts. Sales also missed predictions, tumbling 13 percent to $4.38 billion.

Deliveries Dropping
The widely traded B shares fell 2.7 percent to C$2.51 at 2:31 p.m. in Toronto. The stock had climbed 19 percent this year through Wednesday, while the S&P/TSX Composite Index advanced 3.6 percent.
The company expects to deliver 135 business aircraft this year, contributing $5 billion in revenue. That would be down from 163 deliveries and sales of $5.7 billion last year.
Bellemare nevertheless expressed high hopes for the company’s biggest-ever corporate plane — the Global 7000, which made its first flight in November. Flight tests are proceeding on schedule, and the jet should enter service in late 2018 as planned, he said.
Bombardier also stands to benefit after it cut output starting in 2015 of its large-cabin Global 5000 and 6000 planes as worldwide demand began to wane.
“It was not easy to adjust to lower production rates,” Bellemare said. “I feel very good that we were able to take the volumes down and grow margins by tackling costs in business aircraft. Once the volumes come back, we will see the benefits of all the hard work.”
Cost Savings
Bombardier has eliminated about 6,000 positions since mid-2015, Chief Financial Officer John Di Bert said in the interview with Bellemare. The company expects to save more than $600 million as a result of its restructuring — about one-third of which was reflected in 2016 results, with the remainder coming over the following two years, Di Bert said.
The company is “building credibility” by following through on its financial goals, Walter Spracklin, an analyst at RBC Capital Markets, said in a note to clients. Free cash flow reached $496 million in the fourth quarter, easily topping the $270 million predicted by analysts.
“Cost-transformation initiatives are taking hold, and we believe investor confidence will continue to improve as this management team executes and delivers on its targets,” Spracklin said.
Higher Output
Bombardier meanwhile is ramping up output of the marquee C Series after spending about $6 billion on development. The competitor to single-aisle planes from Boeing Co. and Airbus Group SE entered service in July and will probably contribute to losses for the first two years of production.
Bombardier is “actively engaged” with many customers over potential C Series orders, Bellemare said on a conference call with analysts. “If there’s anything, we’re just more confident than we were a year ago.”