Bombardier to Cut 1,700 Aerospace Jobs on New Plane Delays

Jan 21, 2014 4:58 pm ET

(Updates with closing share price in second paragraph.)

Jan. 21 (Bloomberg) -- Bombardier Inc. is cutting 1,700 jobs in its aerospace division, a 6 percent reduction, as the maker of planes and trains seeks to preserve cash amid delays in new aircraft programs.

Most of the layoffs will be in and around the company’s Montreal base, said a spokeswoman, Haley Dunne, and are part of a 1 1/2-year process of cost-cutting as the company focuses on its core business. The widely traded Class B shares fell 3.9 percent to C$3.95 at the close on the Toronto Stock Exchange.

Bombardier’s move follows the fourth postponement for the CSeries jetliner, which the company said last week was now targeted for a late-2015 debut instead of 2014. Last year, Bombardier pushed back the Learjet 85 business aircraft’s entry into service to “summer 2014” instead of 2013.

“With both of those delays, that’s where the confidence has been eroded,” said Scott Rattee, an analyst at Stonecap Securities who rates the stock sector perform. “It probably underscored to me that they have several valid concerns about cash flow.”

Delivery delays hurt because they mean a longer wait for payments and can balloon development spending. The CSeries program cost already has climbed to $3.9 billion, 15 percent more than projected, and Sterne, Agee & Leach Inc. predicted last week that the latest postponement for Bombardier’s largest- ever model may tack another $1 billion onto the total.

Credit Downgrades

The CSeries delay prompted credit-rating downgrades last week as it suggests the company may need to issue debt to cover its cash shortfall.

Moody’s Investors Service said the CSeries postponement is “credit negative” as it will “increase program costs, complicate efforts to sign additional orders and hinder the company’s ability to reduce cash consumption and leverage.” Fitch Ratings Ltd. cut its long-term rating for Bombardier to BB-, three levels below investment grade.

“We believe there is increased risk of additional capital raise,” Citigroup Global Markets analysts, led by Manish Somaiya, wrote in a note to investors. “We believe Bombardier may tap ~$750 mm in additional debt (vs. our estimate of $500 mm before the announcement).”

Bombardier may provide an update on costs when it reports fourth-quarter results Feb. 13.

The CSeries, Bombardier’s biggest-ever jet, has been beleaguered by problems including bad weather slowing certification trials, rising costs and, most recently, needing more time for test flights.

CSeries Bet

Bombardier is targeting the CSeries to compete with the smallest Airbus Group NV and Boeing Co. single-aisle models, the workhorses of the global airline fleet. Seating capacity on the CSeries will range from 108 to 160, a step up in size for the planemaker whose regional jets are its signature commercial aircraft. Chief Executive Officer Pierre Beaudoin is betting the CSeries can generate $5 billion to $8 billion of additional annual revenue by the end of the decade and help the company almost double sales.

In 2013, Bombardier received orders for 388 aircraft, or 19 percent fewer orders than in 2012.

The job cuts were announced in an internal memo, which said 300 of the eliminations occurred in December, Dunne said.

About 150 of the 850 Machinists union members at Lear’s Wichita, Kansas, factory will be furloughed, said Bob Wood, a union spokesman.

--With assistance from Julie Johnsson in Chicago. Editors: Molly Schuetz, Stephen West