Bombardier Inc. is scaling back operations and cutting 4 per cent of its aerospace division work force amid a slump in aircraft sales and delays in production of its marquee commercial jet.
The move by the Quebec company, which has bet heavily on the C Series single-aisle jet as the future of its commercial aircraft business, will mean the loss of 1,700 jobs, most of them in the Montreal area.
An internal company memo cited the need to impose stricter spending controls in order to meet Bombardier’s 2014 budget demands.
On Monday, Bombardier said it received 19-per-cent fewer new orders for its aircraft in 2013 than in the previous year and blamed the slide on a weak global economy, though rivals Embraer SA, Boeing Co. and Airbus SAS reported record or near-record years.
In addition to problems with the C Series launch, Bombardier has been buffeted by execution problems on some big rail projects and stepped up competition from rival plane makers.
The oft-delayed $3.9-billion (U.S.) C Series program faces potential additional costs that could reach $1-billion or more, several analysts said. Last week, Bombardier said deliveries of the plane won’t begin until the second half of 2015, raising the risk that it will come into the market after a competing product by Airbus, the A320neo.
The company has invested billions of dollars to develop not only the C Series but the Learjet 85 and Global 7000 and 8000 business jets. Delays in the Learjet 85 project have added to the pressure on the company. Bombardier shares dropped nearly 4 per cent Tuesday, closing at $3.95, and have fallen 26 per cent since late October.
“Unfortunately, things that were supposed to be long-term growth and profitability drivers – very large rail projects and new aerospace programs – seem to be where the company is floundering,” said Scott Rattee, an analyst with Stonecap Securities.
Execution problems on some of the company’s rail projects appear to have reappeared and running two cutting-edge aerospace programs at the same time – the Learjet 85 and C Series – puts a real strain on resources, he said.
Meanwhile, Brazilian rival Embraer has been doing a roaring business selling its next-generation E2 family of regional jets that will compete against both Bombardier’s regional aircraft and C Series planes.
“Embraer took the sensible step of re-engining [its E2 regional jets] rather than going for an all-new aircraft,” Société Générale analyst Zafar Khan said in an e-mail.
“The C Series delay is disappointing but not a disaster as the majority of new commercial jet programs suffer delays. However, the C Series delay will result in higher costs and bigger cash outflows. I suppose [Tuesday’s] announcement on job cuts reflects these factors.”
Richard Aboulafia, vice-president of analysis for consulting firm Teal Group Corp. in Fairfax, Va., says developing the C Series means work on other programs, such as major changes to the regional jets, has suffered.
“Because cash was diverted into the C Series, their competitiveness with other products was compromised,” he said.
Bombardier Aerospace spokeswoman Haley Dunne said the job cuts will be across the board and in all categories and are not specific to any one project.
Bombardier is scheduled to unveil fourth-quarter earnings Feb. 13.
Editor's Note: The 1,700 layoffs at Bombardier represent 4 per cent of the work force at the company’s aerospace division. This online story has been corrected from an earlier version.