Bombardier to Scrap 7,500 More Jobs as CEO Deepens Cost Cuts

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(Bloomberg) -- Bombardier Inc. will cut an additional 7,500 jobs -- more than 10 percent of its workforce -- over two years as the maker of trains and airplanes accelerates a restructuring plan after taking on billions of dollars of debt to develop its marquee C Series jetliner.

Restructuring charges of $225 million to $275 million will be reported as special items starting in the fourth quarter and continuing through 2017, Bombardier said in a statement Friday. The Montreal-based company expects the program to yield savings of about $300 million a year by the end of 2018, saying it would ensure competitiveness and improve profit margins.

This is the second major employment cut in eight months by Chief Executive Officer Alain Bellemare, who was hired in February 2015 with a mandate to restore profitability. He’s working to overcome cost overruns and a delay of about two-and-a-half years on the $6 billion C Series, which was developed to rival Boeing Co. and Airbus Group SE planes.

About two-thirds of the cutbacks will occur in Bombardier’s train business, with the remainder in aerospace, Bellemare said in a telephone interview. About 2,000 jobs, or more than a quarter of the total, will be eliminated in Canada, he said.

“We are rebuilding Bombardier and we are refocusing the company on our key projects such as the C Series,” Bellemare said. “Our cost structure is high, and we need to do what is right to make sure we make money on our programs. We want to position ourselves so that we are stronger in the future.”

Key Programs

Bombardier shares and bonds fell. The stock dropped 1 percent Friday to C$1.76 at 10 a.m. in Toronto. The stock has rallied 31 percent this year, though has plunged by more than half since 2011. The 6 percent bond maturing in 2022 dropped to $90.44, lifting its yield to 8.05 percent.

In February, Bellemare unveiled plans to cut 7,000 jobs over two years and about 60 percent of that reduction had been achieved by the end of June. The Canadian manufacturer had a total workforce of about 70,900 as of Dec. 31.

When factoring in both rounds of cutbacks, Bombardier could achieve as much as $600 million of recurring cost savings by 2018, according to Fadi Chamoun, a BMO Capital Markets analyst in Toronto.

“We credit management for making these kinds of tough decisions that are needed to keep the transformation plan on track,” Chamoun said in a note to clients. “Since the company announced its transformation plan in late 2015, the business jet market has softened further and the production ramp-up of the C Series has hit a speed bump due to engine production ramp-up issues at Pratt & Whitney,” which builds the engines for the jet.

Learjet Unit

Friday’s announcement “underscores tough business jet demand and could increase the potential” for a sale of Bombardier’s Learjet unit, Cai von Rumohr, a Cowen & Co. analyst in Boston, said in a note to clients. Bellemare wouldn’t discuss potential asset sales in the interview.

The employment reductions will be partially offset by new hiring to support the ramp-up of key programs such as the C Series and the Global 7000 business jet, Bombardier said. The company will “streamline” administrative and non-production functions and create centers for design, engineering and manufacturing in both its aerospace and rail businesses.

“There will be a significant offset in our resizing,” Bellemare said. Asked for specifics, Bellemare said the company would probably look to hire more than 3,750 employees for “major” programs.

Even so, Friday’s announcement is “extremely disappointing,” Dave Chartrand, Quebec Coordinator at the International Association of Machinists and Aerospace Workers, told Ici Radio-Canada radio in an interview. The union leader faulted Bombardier for failing to immediately identify which jobs will be cut, which will leave “thousands of people in the plants with a Sword of Damocles over their heads.”

About 1,500 of the 2,000 Canadian job cuts will take place in Quebec, Chartrand also said.

Rail Cuts

The global rail business will bear the brunt of the cuts. Headquartered in Berlin, Bombardier’s rail unit makes subways, tramways and high-speed trains. Bombardier has come under criticism from Canadian politicians in recent months for missing deadlines on streetcar and light-rail contracts in the Toronto area.

Bombardier had $8.96 billion of long-term debt at the end of June and $4.4 billion of accessible liquidity -- a figure that climbed to $4.9 billion on Sept. 1 after Quebec completed a $1 billion investment in the C Series. The company’s next maturity occurs in 2018 on $1.4 billion in bonds.

After canceling the Lear 85 business jet, Bombardier raised $2.5 billion this year by selling stakes in the C Series and the company’s train unit to the Quebec government and the Caisse de Depot et Placement du Quebec, the province’s largest pension fund manager.

The manufacturer sought $1 billion in federal government aid last year and the two sides have yet to reach a deal. Canada is considering different ways to provide a cash injection, with Innovation Minister Navdeep Bains saying last week it’s now a matter of how -- not if -- an aid package can be delivered.

Engine Delays 

Bombardier reduced its forecast for C Series deliveries on Sept. 6, citing delays at engine supplier Pratt & Whitney, a unit of United Technologies Corp. Seven of the new aircraft are now slated to be handed over this year, down from an earlier plan of 15, Bombardier said.

It’s too early to say whether Bombardier will need to cut further, Bellemare also said.

“It would be difficult to say we are done” with cutbacks, the CEO said. “We need to become a very agile and flexible organization. We need to drive productivity day in and day out. We need to look at our cost structure every day.”

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