Bombardier Inc.’s deal with Airbus SE to rescue its long-delayed and over-budget jetliner program was supposed to be a lifeline for the struggling manufacturer. Now the Canadian company is rethinking the joint venture, pushing the iconic train and plane maker to the brink once more.
The shares posted their biggest loss ever — Bombardier is almost a penny stock again — and bonds tumbled after the company said it was reassessing the A220 jet program with Airbus. Costs for the new plane are rising, and the goal of breaking even may come later than expected, likely prompting a writedown when Bombardier reports earnings next month.
“The joke continues,” said John O’Connell, chief executive officer of Toronto-based Davis Rea Ltd. “This company has been a disaster my whole career and I’m almost ready to retire.”
The possible retreat from the A220 program, formerly known as the C Series, could be another blow to Bombardier’s efforts to increase cash flow to help pay down its US$10 billion debt load. The company has already sold assets in recent years to tackle its debt, including pending deal for its CRJ jet unit with Mitsubishi Heavy Industries Ltd.
The C Series was originally pitched as a major breakthrough for Bombardier, providing a plane that was bigger than its traditional jets yet generally smaller than Airbus’s workhorse A320-family jets and Boeing Co.’s 737 planes. Yet program delays and cost overruns sent the investment soaring to US$6 billion, raising concerns about the debt, now rated six levels below investment grade.
Bombardier needs to ‘just deliver’ what they promise: McGill’s Karl Moore
Karl Moore, professor of business strategy at McGill University, joins BNN Bloomberg to react to Bombardier slashing its outlook, warning on cash burn and considering pulling out of the A220 partnership with Airbus. He says that CEO Alain Bellemare has done an excellent job in a tough turnaround for the business.
Job Cuts
The delays and slow sales forced Bombardier to announce thousands of jobs cuts in 2016, with doubts over the future of the company pushing the stock to as low as 72 cents. The government of Quebec was forced to step in, investing US$1 billion for a 49 per cent stake in the C Series.
On Thursday, Bombardier tumbled anew, dropping 32 per cent to $1.22 at the close in Toronto. The shares are now at the lowest level in almost four years and the company’s market value is only about $3 billion (US$2.3 billion)..
The deal with Airbus was an elegant solution. Though Bombardier received no upfront cash for ceding its controlling stake, it allowed Bombardier to offload the risk and additional costs of developing the A220. But the latest financial plan calls for more cash to support the ramp-up, pushes out the break-even timeline, and generates a lower return over the life of the program, Bombardier said in a statement Thursday.
With few other assets left to sell, Bombardier may struggle to keep everything going. One of its two remaining businesses — rail equipment and private jets — may have to go, Karl Moore, an associate professor at McGill University in Montreal, said in an interview with BNN Bloomberg.
“Then you become a pure play of either transportation on the train side, or business jets,” he said. “It’s a big dramatic move for sure but one that might be necessary to solve the cash flow issue. I think that’s the question they’re giving some serious thought to right now.”
The potential end of Bombardier’s involvement in the A220 program is combining with continued woes in the company’s rail business to undermine a once-great name in manufacturing.
The company said fourth-quarter sales would be US$4.2 billion, trailing the lowest analyst estimate in a survey by Bloomberg. The results were dragged down in part by new challenges in the company’s rail division. Bombardier said it would take a US$350 million accounting charge because of problems in London, Switzerland and Germany.
Liquidity remains strong, with year-end cash on hand of roughly US$2.6 billion, Bombardier said. But the company is considering alternatives to accelerate its deleveraging and strengthen its balance sheet.
Bonds Resilient
“The final step in our turnaround is to de-lever and solve our capital structure,” Chief Executive Officer Alain Bellemare said in the statement. “We are actively pursuing alternatives that would allow us to accelerate our debt paydown.”
For Mark Carpani, a partner at Ridgewood Capital Asset Management, a larger selloff on the bonds could be a buying opportunity.
“Despite the equity reaction, the debt has a high probability of being paid in the short term,” he said.
The company’s 7.85 per cent bonds due 2027 fell 6.8 cents, the most on record but remain well above distressed levels at 95.3 cents on the dollar, yielding 8.8 per cent, according to Trace data. The US$1.5 billion in notes due 2025 dropped 5.7 cents to 96.3 cents on the dollar to yield 8.4 per cent, the highest since Oct. 31.
The company is scheduled to report full earnings Feb. 13.
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Commercial-Jet Retreat
Airbus said it would continue funding the A220 program “on its way to break-even.” The European aerospace giant owns a 50.01 per cent stake in the regional jet, with Bombardier retaining 31 per cent and state-backed Investissement Quebec holding some 19 per cent.
Bombardier agreed to fund cash shortfalls for the program up to a maximum of $350 million in 2019, and $350 million cumulatively in 2020 and 2021, according to a press release announcing the venture in June 2018. Any excess shortfalls would be shared by the shareholders, the statement said.
Quebec’s economy and innovation minister declined to comment, according to a representative.
The jet added 63 orders in 2019, with 105 currently in service and a backlog of close to 500 planes. Airbus will begin producing the A220 on a second assembly line this year at its factory in Mobile, Alabama.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
