Bombardier Tumbles as Cash Consumption Pace Nearly Doubles

May 01, 2014 4:26 pm ET

(Updates with closing share price in fifth paragraph.)

May 1 (Bloomberg) -- Bombardier Inc. fell the most in 11 weeks after the maker of trains and planes said it consumed cash at almost double the pace of a year earlier as it develops its biggest-ever jet.

In its first-quarter earnings report, Bombardier showed it used $915 million of cash, compared with $590 million for the same period last year. The company had $3.9 billion of available short-term capital resources at the end of March, down from $4.8 billion at the end of December.

Bombardier’s aerospace unit has been burdened by mounting costs and delays as it develops the CSeries. The Montreal-based manufacturer said in January it would eliminate about 1,700 jobs in the business after pushing back the commercial debut of the plane by about nine months. Bombardier’s projected development costs for the jet have ballooned to $4.4 billion, about $1 billion more than initially estimated.

“The key area of concern, and focus for us, remains free cash flow,” Walter Spracklin, an analyst at RBC Capital Markets in Toronto, said in a note to clients.

Bombardier’s Class B shares fell 5.9 percent to C$4.15 for the biggest daily decline since Feb. 13. They have fallen 10 percent so far this year, compared with a 7.7 percent gain in the Toronto Standard & Poor’s/TSX Index.

Chief Financial Officer Pierre Alary tried to assuage investors on a conference call, saying cash use will probably decline “on a sequential basis” throughout the rest of the year. “We don’t anticipate to go back to any sources to increase our liquidity. We have ample liquidity to meet our plans.”

Guy Hachey, president of the company’s aerospace unit, told investors at the company’s annual meeting today that “the efforts and investments of the last few years are about to turn into revenues -- finally.”

CSeries Optimism

Bombardier said a fourth prototype of the CSeries is scheduled to take off in the coming weeks and the program “continues to make solid progress.”

The company has firm orders for 203 aircraft, 97 short of a 300-unit target by the time the jet enters commercial service in the second half of next year.

Chief Executive Officer Pierre Beaudoin said on the conference call that he feels “very confident” the company will reach that target.

Company Success

The prototype “is an important test aircraft,” and “we are optimistic for new orders going into” July’s Farnborough Air Show, Spracklin said yesterday in a telephone interview. “What this company is worth is largely tied to the success of the CSeries.” He rates the shares outperform.

First-quarter earnings excluding some items fell 3.2 percent from a year earlier to $151 million, or 8 cents a share, Bombardier said today. That matched the average of 21 analyst estimates compiled by Bloomberg. Revenue of $4.35 billion missed the average prediction of $4.59 billion.