Bombardier CEO Dials Down New-Jet Ambitions to Focus on Cash
(Bloomberg) -- Bombardier Inc. is scaling back plans to begin a new aircraft program, preferring instead to focus on generating cash flow and whittling down about $9 billion in debt, said Chief Executive Officer Alain Bellemare.
“Over the past few years there was an overinvestment in aerospace,’’ Bellemare said in an interview. “We don’t want to jump and launch an investment in a new program just for the sake of it.”
Bombardier has racked up debt over the last few years for such programs as the new Global 7000 business plane, which is due to enter service late next year, and the C Series commercial jetliner, which made its debut last year and cost at least $2 billion more than planned. The company is now about halfway through a five-year turnaround plan to restore profit and reduce debt. It has predicted break-even cash flow next year.
“We want to make sure we optimize the cash that we will start generating in 2018, 2019 and beyond,” said Bellemare, 56. He became CEO in 2015 and immediately set about shoring up the company’s balance sheet by raising more than $5 billion, including $1.5 billion from the Caisse de Depot et Placement du Quebec, a $1 billion investment in the C Series by Quebec’s provincial government and an equity sale.
The existing product line will generate sufficient revenue, he said, meaning the company sees no immediate need to start work on a new airplane. That marks a shift from January, when Chief Financial Officer John Di Bert said Canada’s biggest aerospace company would probably decide on a new model within 12 to 24 months.
Since Bombardier agreed in October to cede control of the C Series to Airbus SE, analysts have expected that the next big aircraft investment would be a business plane, typically the Montreal-based company’s most profitable segment.
Bombardier’s midsize Challenger line is the most likely candidate for a new model, said Ernie Arvai, a partner at aviation consulting firm AirInsight.
“You go where the margin is,” he said. “I don’t see the opportunity in commercial aircraft unless they do a larger C Series, and now that Airbus will be running the show, it won’t be Bombardier’s call to make.” The company last week forecast that business-jet revenue would jump 70 percent to $8.5 billion in 2020, saying the Global 7000 is sold out through 2021.
Bombardier at some point could build an extended-range version of the Global 7000, though a decision isn’t imminent, Bellemare said. The longer-range aircraft, called the Global 8000, would surrender 9 feet (2.7 meters) of cabin length to gain 500 nautical miles of flight distance compared with the Global 7000, according to Bombardier’s website.
“We need to see what would be the ultimate performance of the 7000, and then we will decide on the 8000,’’ he said. “We have time. The focus is on the Airbus deal. After that, it’s whatever makes good business sense.’’
Bombardier remains committed to building commercial planes, such as CRJ regional jets and Q400 turboprops, Bellemare said.
“Is Bombardier still going to be active in commercial aircraft? The answer is: For years to come, yes,’’ he said in an interview Dec. 14 in New York. “We are going to have a 40 percent participation in the C Series, and we have no plan to exit that. Short term, we want to keep selling Qs and we want to keep selling CRJs.’’
The effort to improve cash flow could include buying back the Caisse’s 30 percent stake in Bombardier’s rail unit, Bellemare said. Canada’s second-largest public-pension-fund manager paid $1.5 billion last year for its holding in the rail operation, which has an order backlog of more than $33 billion.
“It’s got nothing to do with the Caisse,” he said. “They have been a great partner. They came in at a time when we needed that.”
“It’s got everything to do with how we return the best money to our shareholders,’’ Bellemare said.
©2017 Bloomberg L.P.