Bombardier to cut 5000 jobs, sell off turboprop and flight training businesses

Bombardier to cut 5000 jobs, sell off turboprop and flight training businesses
Bombardier is selling off two businesses and cutting 5,000 jobs
LatestBombardier shares lose 15% on TSX after news comes outBombardier has announced measures that will result in 5,000 job losses over the next year and a half.

The Montreal-based company announced it will sell its Q Series turboprop aircraft program to Longview Aviation Capital for $300 million. 

The carrier reached another agreement to sell its business aircraft flight and technical training unit, which is run out of Montreal, Quebec City and Dallas, to another Montreal multinational, CAE. 

Bombardier is also selling training services to CAE for $645 million. The transactions with CAE will total $800 million in revenue for Bombardier and are expected to be finalized by mid-2019. 

The company's third-quarter revenue reached $3.6 billion US, a decrease of about five per cent compared to the same period last year. The company did post a profit of $149 million for the quarter, better than the $100 million loss it saw in the same period a year earlier.

Bombardier CEO Alain Bellemare said the cuts and sales are necessary, and the company would continue to "streamline" its operations.

Prior to the news of the sale of the turboprop division, analyst George Ferguson with Bloomberg Intelligence said he thinks the Q Series "will generate little to no profit" for the company this year, so it makes sense to sell it. While most of the attention on Bombardier centres on the company's jet planes, few of them make a significant amount of money for the company. 

The company's quarterly earnings show that Bombardier has received 66 firm orders for Q400 turboprop jets as of the end of September, up from 43 last December.

That's in contrast to the rail transportation part of the business, which continues to generate cash. "Transportation will generate almost all of cash flow as aerospace … will be flat at best during 2018," Ferguson said.

John Di Bert, Bombardier's chief financial officer, said in a conference call with investors Thursday morning that "the actions announced this morning demonstrate our focused efforts to grow earnings and cashflows."

Bombardier spokesperson Simon Letendre confirmed 500 jobs will be cut in Ontario, where the company employs 6,500 people. It will cut 2,500 jobs in Quebec. The company has 70,000 employees worldwide. 

The Quebec government gave Bombardier $1 billion to backstop the C Series when that project was looking doubtful in 2016, a figure that was met by $372 million in an interest-free loan a few months later by the federal government.

Both moves were questioned at the time, and were again when Bombardier effectively gave the program to Airbus for free a year ago. Questions about the value of that government money are likely to emerge again now that the company is laying off thousands of workers, for the third time in as many years.

Bloomberg analyst Ferguson says Bombardier is fully committed to streamline operations, and expects more asset sales that will strip the company down to a shadow of its former self.

"It's likely if C Series is a success, that Airbus will purchase the remaining at cost given their options," he said Thursday. "Bombardier seems ready to slim down to a business-jet and rail manufacturer."

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It also announced the sale of its business aircrafts flight and technical training business to CAE.

MONTREAL — Bombardier Inc. announced Thursday it will shed 5,000 jobs company-wide and sell off two units as part of chief executive Alain Bellemare’s five-year plan to rein in costs, focus on rail and business jets and reduce the net long-term debt of $9 billion.

About 2,500 Bombardier workers will be laid off in Quebec and 600 in Ontario, with the 2,000 other cuts occurring overseas, according to a spokesman, who did not specify the units.

The company said it will sell its Q400 turboprop aircraft program to a subsidiary of Longview Aviation Capital Corp. for about US$300 million. The Montreal-based company also announced the sale of its flight training business to CAE Inc. for about US$645 million.

The restructuring, announced alongside Bombardier’s third-quarter earnings, is slated for completion within 18 months and for savings of $250 million annually.

The announcement comes after mass layoffs over the past three years, with about 14,500 positions cut around the world in the aerospace and railway divisions.

Dropping the Q400 will allow Bombardier to zero in on producing its Global series of long-range business jets, including the Global 7500, whose first aircraft is slated for delivery next month.

“With the measures announced, we are confident that we will be able to reach our goals in 2020,” Bellemare said during a conference call.

Bombardier shares tumbled by more than 20 per cent to $2.53 in mid-afternoon trading on the Toronto Stock Exchange due to concerns over cash flow.

Bombardier forecast 2019 revenue to increase by 10 per cent to at least $18 billion, powered by more deliveries of its Global 7500s.

Free cash flow came in “well below” expectations that Bombardier could break even on cash without falling back on its $635 million in proceeds from the sale of a Toronto plant earlier this year, said analyst Benoit Poirier of Desjardins Capital Markets.

“The new facility at Pearson (airport) will probably be producing only the Global business jet, and having a dedicated facility for one line gives them a chance to optimize the performance,” said Ernie Arvai, a partner at commercial aviation consultancy AirInsight.

“The next question for Bombardier is what happens with the CRJ line and what happens with the rest of the commercial business.”

The fate of the aging CRJ regional jets has been unclear since the company announced in October 2017 that Airbus SE would acquire a majority 50.01 per cent stake in the C Series, effective July 1 of this year.

Bellemare said at the time the company was committed to the Q400 and CRJ. “We like these products, they give us critical mass.”

He offered similar sentiments Thursday. “On the CRJ, the focus is still on reducing cost and selling aircraft today. We are losing money on the CRJ.”

Karl Moore, an aviation expert at McGill University’s Desautels Faculty of Management, said the layoffs and selloffs will allow Bombardier to shift away from regional jets and shrink its debt.

“The transportation side and business jets are clearly the central focus of Bombardier going forward,” Moore said.

“My government will make every effort to minimize the number of job losses and to help affected employees find a new job,” he said on Twitter in French.

The changes came as Bombardier reported a profit of US$149 million or four cents per share in its latest quarter, compared with a loss of US$100 million or four cents per share in the same quarter last year.

Revenue in what was the company’s third quarter totalled $3.64 billion, down from $3.84 billion a year ago.

On an adjusted basis, Bombardier said it earned four cents per share in the quarter compared with a break-even result in the third quarter of 2017, beating analyst expectations.

Longview Aviation, the parent company to Viking Air Ltd., said once it completes its deal with Bombardier it will become North America’s largest commercial turboprop aircraft manufacturer.

The agreement encompasses the entire Dash 8 program, including the 100, 200 and 300 series and the in-production Q400 program.

“The Dash 8 turbo-prop is the perfect complement to our existing portfolio of specialized aircraft including the Twin Otter and the Canadair CL 215 and 415 series of water bombers,” Longview Aviation chief executive David Curtis said in a statement.

CAE president Marc Parent said in a statement its purchase of Bombardier’s flight training wing “represents a win-win for both companies, resulting in enhanced core focus.”