 |
| Bombardier Global 7000 Bombardier Business Aircraft |
The shares plummeted the most among Canadian industrial stocks Thursday after Bombardier said the Global 7000 will enter service in the second half of 2018. As recently as last year, Bombardier promised a 2016 debut for the 7000, with the smaller 8000 following in 2017.
The postponement adds to the strain on Bombardier, already shaken by more than two years of cost overruns and sales struggles for the CSeries, the suspension of the Learjet 85 program and the reduction in output of the Global 5000 and 6000 corporate aircraft. The 7000 will be able to fly nonstop from London to Singapore and retail for $72.8 million.
“Creating an aircraft of this unique caliber with no compromise in terms of performance and comfort is challenging,” Chief Executive Officer Alain Bellemare said on a conference call Thursday.
Development costs for the CSeries and the Global family have forced Bombardier to raise more than $3 billion in debt and equity this year to ensure it has adequate financing. Long-term borrowings ballooned to more than $9 billion during development of the CSeries.
The company’s cash flow use in the first quarter, at $808 million, was double the projection from Fadi Chamoun, an analyst with BMO Capital Markets. The $1.6 billion consumed in the first half is the highest cash burn “in the history of the company, and consumes far more of the equity/debt issuance than we had been anticipating this far into the year,” he said in a note to clients.
Shares Plunge
The shares dropped 9.7 percent at the close in Toronto, to C$1.76. It was the biggest decline since February and the most on the Standard & Poor’s TSX Industrials Index. They have declined 58 percent this year.
Bombardier announced plans in May to cut about 1,750 business-aircraft jobs due to a slowdown in production of the Global 5000 and 6000 models.
Economic and geopolitical turbulence in some regions, such as China, Latin America and Russia have reduced orders, Bombardier said, contributing to the 5000 and 6000 production cut.
As a result of the “softness in demand,” Bombardier reduced its profit margin forecast in the unit to a range of 5 percent to 6 percent for this year, compared with a February forecast for 7 percent.
“Nothing is working right,” said Bloomberg Intelligence analyst George Ferguson. “The business jets are not working right and the commercial jets didn’t return any profit.”
In the second quarter, Bombardier had eight net orders for business aircraft, 22 fewer than in the same period a year earlier. Commercial jet orders dropped to three from 18.
Additional Costs
In an earlier note to clients, Sterne Agee CRT analyst Peter Arment projected that a delay probably would result in additional costs of “a few hundred million” dollars. While Arment estimates development costs of the Global 7000 and 8000 at $1 billion to $1.5 billion, Bombardier hasn’t provided a definitive figure.
Bombardier is targeting annual sales of $2 billion to $3 billion from the Global 7000 and 8000 programs over a five-year period following the aircraft’s entry into service, according to a March 2014 presentation to investors. The 7000 is able to accommodate 17 passengers versus 13 passengers in the Global 8000.
The Global announcement came as Bombardier reported second-quarter earnings, excluding some items, were 6 cents a share, beating the 5-cent average of analyst estimates compiled by Bloomberg. Revenue rose 2 percent excluding foreign exchange, to $4.6 billion, matching the $4.61 billion average estimate.
Bombardier also reiterated that it is preparing for an initial public offering of a minority stake in its rail unit in the fourth quarter. The listing will probably be in Germany, where Bombardier Transportation is based, Bombardier said. After the IPO, Bombardier will retain control of the unit.