Also Reassessing Future Participation In The Airbus Canada Limited Partnership
It its preliminary results for the fourth quarter and full year 2019, Bombardier reported that it expects lower than previously guided financial performance, mainly as a result of actions taken to resolve challenging rail projects, the timing of milestone payments and new orders at Transportation, and the delivery of four Global 7500 aircraft slipping into the first quarter of 2020.
Aviation deliveries were strong in the quarter, totalling 58 aircraft in the fourth quarter for a total of 175 aircraft for the full year, according to the report. This included 11 Global 7500, six of which were delivered in the fourth quarter. The remaining Global 7500 aircraft originally scheduled for delivery in the final days of 2019 are now expected to be delivered in the first quarter of 2020. As Aviation made good progress ramping up the Global 7500, its full year adjusted EBIT margin is still expected to be approximately 7.0%, in line with full year guidance.
With its exit from Commercial Aerospace, Bombardier is reassessing its ongoing participation in the Airbus Canada Limited Partnership Update (ACLP).
While the A220 program continues to win in the marketplace and demonstrate its value to airlines, the latest indications of the financial plan from ACLP calls for additional cash investments to support production ramp-up, pushes out the break-even timeline, and generates a lower return over the life of the program. This may significantly impact the joint venture value. Bombardier will disclose the amount of any write-down when we complete our analysis and report our final fourth quarter and 2019 financial results.
Liquidity remains strong, with year-end cash on hand of approximately $2.6 billion. The CRJ program sale to Mitsubishi Heavy Industries, Ltd (MHI) and Aerostructures sale to Spirit AeroSystems Holding, Inc., both of which are still tracking to close by mid-year, will provide an additional $1.1 billion of cash subject to customary closing adjustments. The Company has received most of the regulatory approvals required for closing of the CRJ sale.
Consistent with Bombardier’s five-year turnaround plan, and following a comprehensive review of strategic alternatives, the Company is actively pursuing options to strengthen its balance sheet and enhance shareholder value.
That could mean divestiture of its corporate jet business.
“Since launching our turnaround plan, we have addressed our underperforming aerospace assets, completed our heavy investment cycle, and put the Company on a solid path toward organic growth and margin expansion while prudently managing our liquidity and heavy debt load,” said Alain Bellemare, president and Chief Executive Officer, Bombardier Inc. “The final step in our turnaround is to de-lever and solve our capital structure. We are actively pursuing alternatives that would allow us to accelerate our debt paydown. The objective is to position the business for long-term success with greater operating and financial flexibility.”
In a piece written for Forbes, business aviation analyst Brian Foley said there were few potential buyers for Bombardier's business jets. Gulfstream already has successful aircraft in the category occupied by Bombardier's Global line, as does Dassault, Foley said.
Textron, meanwhile, "paused" the Hemisphere program ... its foray into the large business jet category ... last year. However, Foley says Textron generally waits until companies have shed debt through reorganization before scooping them up, as they did with Hawker Beechcraft in 2014. Foley calls Textron "patient value shoppers" in that regard.
Bombardier will provide additional information when it reports its fourth quarter and full year 2019 financial results on February 13, 2020.
(Source: Bombardier news release and as cited. Image from file)
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