Bombardier sees shift to ‘growth cycle’ on luxury jet

Bloomberg

Bombardier Inc., which has been reeling from a weaker cash-flow forecast and a heavy debt load, says it’s about to transition to a new phase of sales growth.
The Global 7500 luxury jet, which will debut in the coming days, will add at least $2.5 billion a year in revenue by 2020, Bombardier said in a presentation. The company is also seeking a $1 billion revenue boost from new rail contracts and a $750 million increase from providing more parts and services.
“Today, Bombardier is a much stronger company,” Chief Executive Officer Alain Bellemare said in a meeting with analysts and investors in New York, surveying the results of a five-year turnaround he began in 2015. “Our heavy investment cycle is now complete and we’re now transitioning to a growth cycle.’’
Bellemare is trying to regain investor confidence after a disappointing cash-flow forecast last month spurred the biggest rout among Canadian industrial companies. As he pitches investors on a brighter future for the company’s rail and private-jet divisions, he’s also pulling Bombardier back from its longstanding focus on commercial aircraft.
Bombardier has tumbled 28 percent this year, compared with a 1.9 percent advance of a Standard & Poor’s index of Canadian industrial companies.
Bellemare spent the beginning of his presentation defending the company’s executive stock-sale plan, which is under investigation by Quebec’s securities regulator. The province’s Autorite des Marches Financiers ordered the suspension of such dispositions last month after Bombardier’s worsening outlook spurred a one-day drop of almost 25 percent — the most in almost four years.
The CEO said he still holds most of the shares acquired as part of the long-term programme.
“We did everything the right way,” Bellemare said. The executive team is “fully committed to the turnaround and long-term success of Bombardier.”
There will be less investment and more cash flow during the second half of the planned turnaround, Bellemare said. With development work on new jet programs now completed, Bombardier said it’s earmarking about $800 million next year for “sustainable” capital expenditures. That’s half the annual average of the past five years.
Faced with delays on some rail contracts, Bombardier invested about $100 million to increase output by about 20 percent this year, said Laurent Troger, who runs the train unit. Bombardier is confident it will recover the working capital next year as deliveries accelerate on the contracts, which include railcars for London and subway cars for New York, Troger said.
Business-jet deliveries will climb at least 11 percent next year following the debut of the Global 7500, Montreal-based Bombardier said in a statement. The aircraft, carrying a list price of $73 million and able to fly nonstop from New York to Dubai, is the company’s biggest business plane. It will compete with General Dynamics Corp.’s Gulfstream G650.
Bombardier plans to ship 15 to 20 of the Global 7500 planes next year, with a majority of deliveries occurring in the second half, said David Coleal, who runs the business-jet unit. Deliveries will rise to as many as 40 in 2020, he said.
Bombardier reaffirmed its month-old forecast for 2019 sales to climb about 10 percent to at least $18 billion. The manufacturer expects to break even on a cash-flow basis, plus or minus $250 million. That includes $250 million for working capital contingencies in business aircraft as the company boosts production of the Global 7500, Di Bert said.