Bombardier Adds Unit in Aerospace Revamp Amid CSeries Delay

Sep 05, 2014 4:24 pm ET

(Updates with closing stock price in fifth paragraph.)

Sept. 5 (Bloomberg) -- Bombardier Inc., struggling with delays on its biggest jetliner ever, widened a six-week-old reorganization by carving out a unit to ensure that new planes are introduced on time.

The engineering and product development business, initially part of another division created in July, will include functions such as flight testing, Isabelle Gauthier, a spokeswoman, said yesterday. The unit’s head will report to Chief Executive Officer Pierre Beaudoin, Gauthier said.

Bombardier’s move creates a fourth unit instead of just three from the breakup of its aerospace operations. The split followed months of setbacks for the grounded CSeries jet and missed deadlines on the Learjet 85 business aircraft even as Montreal-based Bombardier develops the biggest versions yet of its Global private-jet family.

“This company sounds like they heard footsteps from activists,” said Nicholas Heymann, a William Blair & Co. analyst in New York who rates Bombardier as outperform. “There’s no more time for discussion. It’s time for action. Pierre Beaudoin wants results. There is ultra-urgency at the company.”

Bombardier’s widely traded Class B shares dropped 0.5 percent to C$3.63 in Toronto today. Bombardier is the third- worst performer among Canadian industrial stocks this year, falling 21 percent through today.

No Announcement

Bombardier disclosed the shake-up to employees on Sept. 3, according to Gauthier, who said no public announcement was planned.

The new business will be run by Francois Caza, a Bombardier veteran of about 30 years who worked on the CRJ regional jets, Gauthier said by telephone. He has been named vice president of product development and chief engineer for aerospace.

Bombardier originally placed the unit in the aerostructures unit created along with the split-up of commercial aircraft and business jets in the dismantling of its aerospace operations. Bombardier Aerospace President Guy Hachey retired, and executives such as Philippe Poutissou, vice president of marketing for commercial aircraft, left the company.

Beaudoin “wants to be more involved in a day-to-day sense,” David Tyerman, a Canaccord Genuity Corp. analyst in Toronto, said by telephone. He rates the stock as buy. “The CSeries is late, the Lear 85 is late, and the balance sheet has gotten a lot more stretched. They have to operate more profitably.”

Sale Speculation

On a July 31 conference call, Beaudoin dismissed speculation that the corporate shuffle would pave the way for a sale of the aerostructures division, which makes aircraft components.

A divestiture is “a possibility,” William Blair’s Heymann said by phone. “I don’t think it’s an intended objective right now.”

Aerostructures and engineering services accounted for about $550 million in 2013 revenue, according to an Aug. 1 note from Joseph Nadol, a JPMorgan Chase & Co. analyst in New York. Gauthier declined yesterday to estimate how much revenue comes from engineering services.

An engine fire in May forced Bombardier to park the CSeries test fleet, three months after the company said development costs had climbed to $4.4 billion, about $1 billion more than originally estimated.

Analysts including AltaCorp Capital’s Chris Murray and William Blair’s Heymann have said in recent days they expect CSeries flight trials to resume this month.

Bombardier, a maker of trains as well as planes, announced the elimination of 1,800 jobs when it broke apart the aerospace business. Those cuts follow dismissals of 1,700 positions disclosed in January, when Bombardier announced the fourth postponement in the CSeries’ commercial debut.

While the company has targeted the plane as a linchpin of future sales growth, with $8 billion in annual sales, the CSeries has won few customers among major airlines and isn’t due to be flying for them until late 2015.