'They chew up a lot of cash': Investors cast doubt over Bombardier's turnaround strategy - Canadanewsmedia
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'They chew up a lot of cash': Investors cast doubt over Bombardier's turnaround strategy

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Bombardier’s ongoing turnaround was dogged Thursday by old worries about the firm’s balance sheet as a lower cash flow projection cast doubt over the debt-strapped firm’s prospects. Bombardier announced plans to cut 5,000 jobs — including 2,500 in Quebec and 500 in Ontario — and to sell both its turboprop unit and a training business as it continues to strive for a future in trains and luxury jets. The company also unexpectedly altered its cash flow guidance, suggesting it will only break even in 2018 after the proceeds of a $625 million land sale are included. Though the previous goal was to break even without this injection, Bombardier chief executive Alain Bellemare cited a need for working capital at the company’s rail business for altering the target.

“During the earnings and cash flow building phase of our turnaround, we will continue to be proactive in focusing and streamlining the organization, and disciplined in the allocation of capital,” Bellemare said. The market did not share the CEO’s enthusiasm, sending shares of the aerospace firm tumbling. The stock fell a steep 24.5 per cent, closing at $2.41 per share in Toronto, as the cash flow issue drove new concerns about Bellemare’s mission to reshape the Montreal based firm. For investors the unexpected shift pressed on an old nerve, said David Tyerman, transportation and industrials analyst with Cormark Securities. “Bombardier has had problems historically and the problem is often that their balance sheet gets into trouble because they chew up a lot of cash,” he said. “So this is tapping into a long-standing concern. It did come out of the blue and with a company that has a fair bit of debt. It’s a sensitive issue.” Bombardier is carrying $9.5 billion in adjusted debt, much of it built up through cost overruns and delays tied to the development of its Global 7500 private jet and the C-Series narrow-body airliner. “Investors won’t like the big chop to cash flow guide, which raises questions (regarding) management credibility and ability to complete a successful turnaround,” Cai von Rumohr, an analyst with Cowen Equity Research wrote in a note to clients. Bellemare is pursuing an aggressive strategy in a bid to build Bombardier’s future around trains and private planes. The firm ceded 50.1 per cent of the C-Series airliner to European giant Airbus Group SE earlier this year and the long-range Global 7500 business jet is set to debut next month. It has also slashed costs, selling off non-core assets and streamlining processes. The asset sales announced yesterday will bring in about $900 million. The company still holds its CRJ regional jet program, where it will focus on reducing costs while exploring “strategic options” for the future, the company said. The turnaround drive has brought with it thousands of job cuts. The latest round, announced yesterday, will yield annual savings of $250 million by 2021, the company said. “This is very bad news, it sends a worrisome message about the future of the industry,” Renaud Gagne, head of the Unifor labor union’s Quebec branch, said in a statement. “We are in the dark as far as what comes next.” Since Bellemare took the reins in 2015, the company has improved its profitability and made strides toward its 2020 objectives, analysts say. Bombardier’s profit margin (EBIT margin) on its rail division rose to 9.3 per cent last year compared with 5.6 per cent in 2015. Meantime, the profit margin in its business jet division rose to 8.4 per cent from 4.4 per cent over the same period. “From a business jet standpoint Bombardier appears to be in a much better position now compared to a few years ago,” Daniel Hall, senior valuations analyst with FlightAscend Consultancy said in an email. “Speaking to the market, there is definitely a lot more confidence with Bombardier — they are also in better shape with regards to delivery numbers and orders.”


A train car bound for Edmonton’s Valley Line LRT shipped from Bombardier’s Kingston, Ont., factory June 27, 2018.

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Bombardier is better able to compete with the smaller firms in the luxury jet business than it was with aerospace giants like Airbus Group, said Tyerman. The segment also holds more room for growth for the firm, he added, pointing to the much higher profit margins of competing firms such as Gulfstream Aerospace Corp. Its rail division operates in a different competitive landscape, facing a much larger competitor in China’s CRRC Corp. And it could soon be up against another larger firm if German industrial group Siemens AG and French rival Alstom SA follow through on plans for a merger, though that problem is unlikely to emerge for several years, Tyerman said. “They’ve done a lot of good stuff but this is a company with a lot of debt,” Tyerman said. “It’s like a homeowner who makes a lot of money but has a massive mortgage. You’re still only a short way away from disaster. That’s the big issue here.” • Email: npowell@nationalpost.com | Twitter:

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City to provide update on LRT launch

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We're expecting to get another update on the launch of Light Rail Transit in the capital on Wednesday morning. 

The $2.1 billion project was expected to be up and running by November 2 but in early September the city learned the Rideau Transit Group would not be making the handover date. 

This put the city in a position to deduct $1 million from the next payment to the RTG, which will come once they achieve substantial completion. 

In September, the city said they were hoping to see LRT up and running by the end of Q1, or by the end of March. 

An update from the city manager in October, revealed there was still significant construction work required at Rideau Station. 

They were also keeping a close eye on Parliament Station, other west end stations and the ability to have multiple trains running along the line at the same time. 

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Gas prices could drop as low as 99 cents a litre on Thursday, expert says

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Attention Ontario drivers: don't gas up on Wednesday, wait until Thursday, when gas prices are forecast to fall.

That's the word from Dan McTeague, senior petroleum analyst at GasBuddy.com, a website that monitors gas prices throughout North America. McTeague says average gas prices on Thursday in the province could be the lowest since Oct. 5, 2017.

And some gas retailers could drop the price even lower, charging as low as 99 cents a litre, he predicted.

"Gas prices will be falling, anywhere you are, net four cents a litre. Not just the GTA, but pretty much all of Ontario," McTeague said on Wednesday.

The average price of a litre of gas in the GTA, currently $1.159, is expected to fall at midnight by four cents to $1.119 a litre.

Dan McTeague, a senior petroleum analyst for GasBuddy.com, said: 'the best advice would be, not to fill up today, but wait until tomorrow. You will save an average of a 4 cents a litre.' (CBC)

"We are going to see, as a result of yesterday's deep losses on energy markets, a net four cent decrease for motorists who will be filling up," he said.

"The best advice would be, not to fill up today, but wait until tomorrow. You will save an average of a 4 cents a litre. And of course, that could mean at many stations in the Toronto area, prices will be at or perhaps even below a dollar a litre."

McTeague, based in Toronto, said many gas retailers will charge below $1 a litre because they will shed their "operating margins," which could be 10 or 11 cents a litre, as part of "deep discounting."

He said motorists haven't seen the "magical number" of 99 cents in over a year.

Low prices expected to stay for next several days

McTeague said the markets are rattled because the price crude oil has dropped more than $20 a barrel in a month.

He said it's hard to say how long gas prices will stay this low.

"For now, it looks like this might be as good as it gets for the next several days."

McTeague said the drop is unexpected and it is in response to the rapid drop in the price crude oil. On Tuesday, crude oil dropped nearly eight per cent in value, he said.

"Consumers are now benefiting from that decrease."

For average drivers who use 60 litres a week, the decrease represents a savings of up to $15 a week, he added.

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Canadian oil producers hurt by double whammy

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Canada’s oil producers can’t catch a break.

Even as local production cuts help alleviate pipeline bottlenecks, heavy crude plunged below $18 a barrel for the first time since 2016 – dragged down by global oil prices.

“The differentials are holding to modestly improving but the global prices are sliding,” said Kevin Birn, a director on the North American crude oil markets team at IHS Markit. “We called it a double whammy.”

Oil sands producers including Canadian Natural Resource, Devon Energy, Cenovus Energy and Athabasca Oil have announced curtailments that may total 140,000 barrels a day or more, after a localised glut sent heavy Western Canadian Select (WCS) crude plunging to a $50 discount to West Texas Intermediate futures, the widest in Bloomberg data going back a decade.

Since then, WCS’s discount has narrowed to about $42 a barrel, but the absolute price has plunged along with world crude benchmarks amid concerns of oversupply. The US has granted eight nations waivers to continue buying Iranian oil, while Opec and Russia have boosted production. WTI futures dropped for a tenth straight day on Friday, falling briefly below $60 a barrel.

“Lower global oil demand growth estimates and soaring US production have all fed into this bearish crude picture,” Joan Pinto, an energy specialist at Canadian Imperial Bank of Commerce, said in a note. “The WCS differential has actually held in remarkably well, all things considered.”

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Adding to the Canadian oil woes, two pipeline projects that would eventually help producers get their crude to markets are facing court delays. At the weekend, a US court ruled that an environmental assessment of TransCanada’s Keystone XL pipeline was inadequate, a decision that could delay the $8 billion project by eight months. Earlier this year, a Canadian court ruled that the planned expansion of the Trans Mountain pipeline to the Pacific would need to undergo further regulatory reviews.

Canada’s crude export pipelines are rationing space after a surge of new production from the oil sands came online late last year and early this year. Recent refinery maintenance in the US Midwest has also reduced demand for Canada’s oil. Currently, just one export pipeline project, Enbridge’s Line 3 expansion, is under construction and scheduled to begin operating by the second half of next year.

Oil companies may be curtailing production now in anticipation that they will get better prices later when access to rail cars or pipelines improves, Mr Birn said.

“There is a financial upside to their strategy,” he said.

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