(Bloomberg) — Bombardier Inc. fell the most on record after warning of disappointing fourth-quarter sales and revealing that it may exit a joint venture with Airbus SE that makes the A220 jetliner.
A ramp-up in A220 production will require additional cash investment, pushing back the break-even point and generating lower returns across the lifetime of the project, Bombardier said in a statement Thursday. The value of the A220 joint venture is likely to be diminished and the amount of any writedown will be disclosed with full 2019 results next month, the company said.
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. Walking away from the A220 would close the book on Bombardier’s involvement in an aircraft program in which the company invested more than $6 billion.
Profitability and free cash flow are “significantly lower than previously anticipated,” amounting to a big setback for the company, Fadi Chamoun, an analyst at Bank of Montreal, said in a note to clients. Bombardier’s reassessment of its participation in the A220 program is likely to result in a writedown, he said.
Bombardier plunged 36% to C$1.14 at 10:09 a.m. in Toronto after sliding as much as 39% for the biggest intraday tumble on record. That dragged shares to the lowest level in almost four years.
Yields on Bombardier’s $1.5 billion in notes due 2025 rose to 7.7%, the highest since Nov. 1. Bond yields move inversely to prices.
Bombardier said fourth-quarter sales would be $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 $350 million accounting charge because of problems in London, Switzerland and Germany.
The timing of milestone payments and the slippage of four business-jet deliveries into the first quarter of 2020 also clipped results late last year, Bombardier said.
Liquidity remains strong, with year-end cash on hand of roughly $2.6 billion, Bombardier said. But the company is considering alternatives to accelerate its deleveraging and strengthen its balance sheet.
“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.”
The company is scheduled to report full earnings Feb. 13.
The potential end of Bombardier’s involvement in the A220 would cap a retreat that began in 2018 when the company ceded control of the platform to Airbus for no upfront cash. The plane won praise for its fuel-efficient engines, composite wings and larger than usual windows. But the program ran more than two years late and about $2 billion over budget, and Bombardier had trouble finding buyers in an industry dominated by Airbus and Boeing Co.
Airbus said it would continue funding the A220 program “on its way to break-even.” The European aerospace giant owns a 50.01% stake in the regional jet, with Bombardier retaining 31% and state-backed Investissement Quebec holding some 19%.
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.
Bombardier agreed last year to sell a plant in Belfast, Northern Ireland, that makes wings for the A220. The buyer, Spirit AeroSystems Holdings Inc., is seeking to boost its exposure to Airbus programs after suffering as a supplier to Boeing’s grounded 737 Max.
The Canadian company also agreed to sell its regional-jet program to Mitsubishi Heavy Industries Ltd.
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Unifor president Jerry Dias taken into police custody at Regina's Co-op Refinery – CBC.ca
Unifor national president Jerry Dias was arrested along with six other members of the union on Monday afternoon amid rising tensions in a dispute with the Co-op Refinery in Regina.
The arrests came after union members set up blockades outside the refinery, contrary to a recent court order.
“Unifor members had completely blocked the entrances/exits to the Co-op Refinery Complex, not allowing vehicles to enter or exit the property,” the Regina Police Service said in a statement.
Dias had said at a media conference that morning that the blockades were set up by members of other Unifor locals. He argued that they therefore did not violate the injunction, which bars members of Local 594 — which represents workers at the refinery — from blocking access to the facility.
“We’ll deal with that in court because our argument today is that we are not violating any injunction at all,” Dias said.
We need thousands more <a href=”https://twitter.com/hashtag/Unifor?src=hash&ref_src=twsrc%5Etfw”>#Unifor</a> members to come to Regina because <a href=”https://twitter.com/reginapolice?ref_src=twsrc%5Etfw”>@reginapolice</a> have decided to side with <a href=”https://twitter.com/CoopFCL?ref_src=twsrc%5Etfw”>@CoopFCL</a> <a href=”https://t.co/IJPjqGp6BV”>https://t.co/IJPjqGp6BV</a>
Dias, on Twitter, later accused the police of picking sides, and called for more Unifor members to travel to Regina in solidarity.
Police did not confirm who else was arrested or if any charges were laid.
Monday marked 46 days since Unifor members were locked out.
The blockades were taken down Monday evening.
The dispute mainly comes down to pensions. A previous deal included a defined benefit pension for workers. Now the refinery is moving toward a defined contribution plan.
The union says this amounts to taking away workers’ pensions. The refinery says it is trying to remain competitive.
“We are going to guarantee you that not one fuel truck is going to leave this facility. From now on we’re not going anywhere,” Scott Doherty, Unifor’s lead negotiator and executive assistant to the president, said.
The refinery said in a statement that the blockades were illegal and that it is exploring legal options.
“Unifor continues to use illegal blockades as a bullying tactic and has brought in extra people to help them to it,” the statement said. “Today’s actions by Unifor represent yet another violation of the court injunction.”
Regina police said they were monitoring the situation. In a statement, police said they were communicating with both sides to keep the peace and advising motorists to avoid the area of Ninth Avenue N., MacDonald Street and Fleet Street.
Before his arrest, Dias estimated that about 500 people were brought in from across Canada to Regina and said more are expected. Dias said the union also plans to increase the boycott of Co-ops across Western Canada if a deal isn’t made.
“Clearly the only place that this dispute will be resolved will be at the bargaining table,” Dias said.
The refinery previously said Unifor hasn’t returned to the bargaining table since September 2019.
Large flare seen
A video showing a large flare at the Co-op Refinery on Saturday has been circulating on social media.
The refinery said in a statement that the facility momentarily lost power from SaskPower. As a result, some units came down at the same time.
“The flare system did the job it is designed to do in that situation. Power was restored within a minute of the incident, and our highly skilled management team brought the refinery units back online per normal operating procedures,” the refinery said in a statement.
“Power failures happen occasionally, and our team is always prepared for an emergent scenario such as this.”
Dias said flare-ups happen when replacement workers without proper experience are running a plant.
“We’re hoping that the safety concerns are being addressed,” Dias said. “We’re hoping that the facility is just being taken care of properly, from a maintenance point of view. But ultimately we’re not in control of that today. We wish we were but we are not.”
Unifor is Canada’s largest private-sector union, with around 310,000 members.
Gold, industrial stocks push TSX higher
Canada’s main stock index rose on Monday with gains in gold and industrial stocks, while a holiday in the United States prompted languid trade.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 38.37 points, or 0.22 per cent, at 17,597.39.
The holiday commemorating slain civil rights leader Reverend Martin Luther King Jr. in the United States resulted in a lack of cues from the U.S.-listed shares of TSX majors.
The materials sector, which includes precious and base metals miners and fertilizer companies, added 0.7 per cent as gold prices rose amid some safe-haven demand.
Industrial stocks rose 0.8 per cent as Bombardier Inc. shares increased 8.9 per cent and Ballard Power Systems Inc. closed 3.5 per cent higher.
Energy lost ground on Monday, sliding 0.1 per cent despite an increase in oil prices.
Leading the index wereWestshore Terminals Investment Corp., up 3.4 per cent, and Alamos Gold Inc., higher by 3.1 per cent.
Lagging shares were Hexo Corp., down 2.9 per cent, Encana Corp., down 2.7 per cent, and Martinrea International Inc., lower by 1.7 per cent.
European shares retreated from recent peaks on Monday as investors paused before launching into a week packed with economic data and the European Central Bank’s first policy meeting of the year.
The pan-European STOXX 600 index was down about 0.1 per cent, after ending at a record high on Friday on optimism around U.S.-EU trade talks. Market activity was thin because of a holiday in the United States.
The benchmark European index has risen about 2 per cent so far this month, as investors bet on a recovery in global growth amid cooling U.S.-China trade tensions.
“We are seeing a little bit of a pullback, having seen a very good run in markets since the start of the year,” said Craig Erlam, senior market analyst at Oanda in London, adding that there was also some profit taking ahead of a “big week” consisting of U.S. corporate earnings and the World Economic Forum in Davos.
Markets will also be watching for the Purchasing Manager’s Index (PMI) from the euro zone on Friday, with a recent Reuters poll showing that economists expect a slowdown in the bloc to have bottomed out in 2019.
Comments from ECB Chief Christine Lagarde at the central bank’s first policy meeting for the year on Thursday will also be a point of interest. The bank is expected to keep the deposit rate unchanged after cutting it in September for the first time since 2016.
“We got a massive policy stimulus announced a few months ago, and it’s going to take some time for that to filter through to the financial system. It’s unlikely that the ECB is going to act in the aftermath of that so soon,” Oanda’s Erlam said.
Oil prices rose to their highest in more than a week on Monday after two large crude production bases in Libya began shutting down amid a military blockade, risking reducing crude flows from the OPEC member to a trickle.
Brent crude was up 51 cents, or 0.8 per cent, at $65.36, having earlier touched $66 a barrel, its highest since Jan. 9.
West Texas Intermediate was up 27 cents, or 0.5 per cent, at $58.81 a barrel, after rising to $59.73, the highest since Jan. 10.
Two major oilfields in southwest Libya began shutting down on Sunday after forces loyal to Khalifa Haftar closed a pipeline, potentially cutting national output to a fraction of its normal level, the National Oil Corporation (NOC) said.
NOC declared force majeure on crude loadings from the Sharara and El Feel oilfields, according to a document seen by Reuters.
The closure, which follows a blockade of major eastern oil ports, risked taking almost all the country’s oil output offline.
The changing world of corporate activism
Something rare happened in the world of Canadian business this January — a CEO took a political stance publicly.
On January 12, the head of Maple Leaf Foods, Michael McCain, logged onto his company’s corporate Twitter account and criticized the Trump administration for escalating tensions with Iran.
McCain tied U.S. actions to the Ukrainian Airlines flight shot down over Tehran.
I’m Michael McCain, CEO of Maple Leaf Foods, and these are personal reflections. I am very angry, and time isn’t making me less angry. A MLF colleague of mine lost his wife and family this week to a needless, irresponsible series of events in Iran…
This doesn’t often happen. Corporate entities in Canada tend to stay away from controversial topics. But it is not unheard of.
Heather Reisman is the longtime CEO of Indigo Books.
She spoke with Cost of Living host Paul Haavardsrud about the times she has felt obligated to speak out.
Just five days after Reisman started an online petition, it gathered more than 70,000 names demanding that the woman be set free.
The CEO also wrote an open letter to the president of Iran urging him to release Sakineh Mohammadi Ashtiani.
“I just thought, I just can’t let this one just go by. The notion that a person would be buried up to their neck in sand and stoned to death … that initial impetus is what led to the decision to create a petition,” said Reisman.
Do you think there’s a difference between your private self and your responsibilities as a CEO of a company?
No. I think your values are your values. Absolutely … if you’re a different person when you’re at work than you are when you’re at home or when you’re on a walk thinking about what you care about, then who are you?
What do you think it is that holds a company back?
If you take a position on something that is considered controversial, there’s always the possibility that there could be some fallout that you have to navigate.
I believe, over time, your employees most value a CEO whose values are clear and strong.– Heather Reisman, CEO of Indigo Books
For me to speak out about the importance of literacy and the fact that we are implicitly or explicitly ignoring that we are holding a whole segment of kids back from attaining rich literacy, it’s not very controversial … people may not be aware but that’s not a big risk. You’re gonna get a gold star for that and you’re not going to risk a lot.
It’s [riskier] when you make a statement that could … cause some customers to say well, we don’t like that position, or even some employees. I believe, over time, your employees most value a CEO whose values are clear and strong and who does not depress those values if there is a business issue. In fact, the opposite.
I think your employees most respect a CEO whose values are clear, who they align with, and who they can feel confident that all of the decisions of the company will be consistent with those values.
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