Bombardier will reduce the size of its facilities

Bombardier estimates the impact of the pandemic on its already strained liquidity at $ 2.25 billion. Its president and chief executive officer, Eric Martel, intends to present a new plan this winter which will notably see the company reduce the size of its facilities, whose capacity is currently twice the demand.

Jean-Francois Codère
Press

Despite the impacts of the pandemic, Bombardier managed to generate net income of $ 192 million in the third quarter, ended September 30. This profit, however, is attributable to the Transportation division, which it is preparing to sell. At the same date last year, the Quebec conglomerate had declared a loss of 91 million (all Bombardier results are presented in US dollars).

The activities that Bombardier intends to continue have generated a net loss of 24 million, compared to a loss of 168 million at the same date last year.

The pandemic will nevertheless have had a major impact on the company’s liquidity, the focus of investors and the main priority of management, admitted Mr. Martel. This impact is now estimated at 2.25 billion.

Bombardier has not returned to stratospheric debt ratios that forced it to sell its Transportation division, assures Mr. Martel.

“We didn’t exactly come back to the same point, maybe somewhere in between. But it is clear that the ratios that we anticipate, if we do not improve our profitability, are a little too high. “

There are therefore actions to be taken.

“We’re going to have to learn how to operate profitably under current market conditions,” the president warned during a conference call with financial analysts. In other words, we need to have a cost structure and a backlog that allows us to make money in today’s market, delivering 100 to 120 planes per year. (…)

“Although the company has undertaken various restructurings in recent years, the reality is that we have an infrastructure designed to support double the capacity of the current market. It needs to be addressed and we are already doing it. “

Quebec factories in safety

All of Bombardier’s remaining Quebec factories “are part of the future,” Martel said, but the size of some is a problem.

“I have factories that have already supported up to 400 planes per year, including business and commercial planes. There are factories where we had 4,000 people where we have 800 today, which have become much too expensive. “

There are two avenues, he considered: reducing their size or filling them more, for example by repatriating work currently carried out as a subcontractor. In the case of the huge Saint-Laurent factory, however, he conceded, it does not seem realistic to occupy it entirely.

Declining revenues, increasing demand

Revenues reached 3.525 billion in the quarter, down 5.2% due in particular to a lower number of business aircraft deliveries attributed to the pandemic, the decline in service revenues caused by the less use of its products and the fact that it no longer owns the CRJ program.

Revenue from business aircraft increased 10%, driven by higher deliveries of the Global 7500, its newest and most expensive model. The low profitability of these, expected at the start of the program, however had a negative impact on its margins.

The backlog of business aircraft shrank from $ 14.4 billion to $ 12.2 billion. This should not be seen as a sign that sales are difficult during this pandemic period, according to Mr. Martel. Here again, it is the Global 7500 deliveries that explain this drop and which could explain it on a recurring basis for up to 3 years.

“The sales are there, but we sell more mid-size devices,” he explained. Customers come forward, whether directly with Bombardier or rather with the fleet managers who use its aircraft.

“The issue we have and which makes our order book seem to be going down is that we deliver a lot more Global 7500s than we take orders. And the reason we’re taking fewer orders is that we didn’t have a plane available in the next 18-24 months. [NDLR : parce qu’ils sont tous vendus]. Customers, often when it’s too far out on time, they’re not going to want to buy. “

As such, the company presented as good news the decision of one of its major customers to cancel the delivery of 12 Global 7500s scheduled for 2023. These sales have not been canceled or postponed, he said. company without providing further details, which suggests that the client instead turned to other models of the company. The 12 Global 7500s to be assembled in 2023 could be sold for more, Bombardier said, than the “introductory price” obtained by this customer originally.

A plan for profits

A real estate redevelopment will not be enough to give Bombardier a profitability capable of supporting its high debt, agreed Mr. Martel. Other avenues are explored. The focus is on the normal progression of the profitability of sales of the Global 7500 as the learning curve progresses. In fact, the first profitable units are expected to be delivered in 2021 and “normal” margins are expected for 2023.

Bombardier also wants to increase its revenue from after-sales services, described as “extremely lucrative”.

The five-year plan, presented this week to the board of directors, will be explained to investors once the sale of Bombardier Transportation to Alstom is concluded, probably this winter, Martel said.

The company consumed nearly $ 700 million of liquidity during the quarter, mainly due to an increase in its inventory used to fuel larger deliveries expected in the fourth quarter. The latter should generate approximately equivalent positive cash flow, it is announced.