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A logo sits below cabin windows on the Bombardier CS100 C Series aircraft, manufactured by Bombardier Inc., during preparations ahead of opening at the 51st International Paris Air Show in Paris, France, on Sunday, June 14, 2015. (Jasper Juinen/Bloomberg)
A logo sits below cabin windows on the Bombardier CS100 C Series aircraft, manufactured by Bombardier Inc., during preparations ahead of opening at the 51st International Paris Air Show in Paris, France, on Sunday, June 14, 2015. (Jasper Juinen/Bloomberg)

Bombardier says worst over in business jet market; turnaround plan moving ahead Add to ...

Softness in the global market for luxury aircraft has bottomed with an improvement in sales on the horizon, Bombardier Inc.’s chief executive officer said as the plane maker pushes forward with a turnaround plan that’s yielding early results despite a dearth of significant orders for new aircraft.

Alain Bellemare’s comments came as Bombardier reported mixed fourth-quarter results that missed on earnings-per-share but wowed on free cash flow. The closely-watched metric was $496-million (U.S.) – more than $200-million above analyst estimates – as the company shipped more business jets to customers than expected.

Bombardier shares fell 1.6 per cent to $2.54 in early afternoon trading on the Toronto Stock Exchange. They jumped 19 per cent this year through to Wednesday, beating a 4 per cent gain for the S&P/TSX Composite Index.

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The market for luxury jets including the three product families Bombardier builds is “not back yet,” Mr. Bellemare told analysts on a conference call Thursday. “It’s still a soft market and we’re seeing this pretty much everywhere around the world. But we believe that this is pretty much the bottom.”

Order activity should be flat for 2017 before potentially rebounding later in the year, Mr. Bellemare said. “We’re seeing a pretty good level of activity,” he said. “We’re optimistic.”

Bombardier cut production of its Global 5000 and 6000 luxury jet models in 2015 to a rate of about 50 annually to better match its supply to demand. The move is a key reason why it delivered fewer business aircraft last year than the year before. For the fourth quarter, however, the company shipped 54 corporate jets, more more than expected, fuelling a higher cash flow. The large-cabin Globals have traditionally been Bombardier’s most profitable aircraft.

Now that the C Series is flying with its launch customers in Europe, all of Bombardier’s aerospace engineering resources are now being directed to development and testing of the Global 7000, an all-new luxury jet with a list price of $72.8-million (U.S.). Mr. Bellemare rejected suggestions the aircraft was behind its development schedule and said it is on track for entry into service in the second half of 2018.

Mr. Bellemare is steering a five-year turnaround effort at Bombardier that has seen the company shore up its finances by selling stakes in its C Series plane and train units and announce the elimination of 14,500 jobs as he works to rebuild earnings. Senior management has been completely overhauled.

The efforts are starting to show up on the income statement.

In addition to strong cash flow generation, the company reported stronger-than-expected earnings before interest and taxes excluding special items in the fourth quarter, driven by its operational improvements at its train division. Management reiterated previous profit guidance targets, expecting to break even on a cash flow basis in 2018.

On the flip side, the world’s only maker of both planes and trains, posted a loss of 7 cents per share excluding special items for the three month period ending December 31 after breaking even during the same quarter in 2015. Analysts had expected a loss of 3 cents, according to the average of estimates compiled by Bloomberg and Reuters.

Revenue fell 13 per cent to $4.38-billion for the quarter and 10 per cent for the year to $16.4-billion. The company had $4.5-billion in available liquidity at the end of December. 

"Overall, these results show additional evidence that Bombardier is rapidly shedding its operational and financial liquidity problems of the recent past," said Steve Trent, an analyst with Citi Investment Research in New York. 

Significant challenges remain. Orders for new planes continue to be weak in both business and commercial aviation with a book-to-bill ratio of 0.4 times for both units in the quarter, BMO Capital Markets analyst Fadi Chamoun noted. Rumours of an order for C Series jets from British Airways parent IAG would improve that situation. 

Results for the quarter were "soft," said Desjardins Capital Markets analyst Benoit Poirier, noting the company did not announce any new C Series orders with the earnings release like it did in tandem with last year's fourth quarter report. "Although the lack of orders has no impact on the financial results, we believe it could be seen as a disappointment by some investors," he said.

With both C Series plane models now in commercial service after a two year delay, Bombardier has to convince new C Series customers to pay a price that will yield a profit. The plane's first customers typically receive sizable discounts but Bombardier is now trying to persuade new clients that the planes are worth the savings they deliver on fuel efficiency and operations.

The Canadian government last week announced a $372.5-million (Canadian) repayable financing package for the plane maker.

Bombardier Chief Financial Officer John Di Bert said the company has 15 years to repay the money as royalties tied to sales of C Series planes and business jets, confirming the timing spelled out on the federal SADI aid program’s website. There is a two-year grace period before repayments begin, he said. Cash proceeds to Bombardier will be between $70-million and $100-million per year (Canadian) over four years, he said.

The money was far short of the $1-billion Bombardier was initially seeking from Ottawa. Nevertheless, it once again exposed regional tensions, with commentators in Western Canada denouncing the government’s willingness to fund a Quebec-based manufacturer while not doing enough to help their provinces. Many people in Quebec, meanwhile, said the aid fell short of what was needed.

The cash injection also triggered a backlash from Brazil, home base for rival aircraft maker Embraer as well as accusations from the Official Opposition in Parliament that the money constitutes an unnecessary bailout. Brazil said it filed a complaint over the Canadian aid with the World Trade Organization, charging the aid amounts to subsidies that are illegal under WTO rules or distort the global market for airplanes.

Bombardier has rejected that view, saying it is confident that all of its investments and programs comply with trade regulations. The money provides “additional financial flexibility” that will help the company weather unforeseen events as it starts to think about its next aircraft development program, Mr. Bellemare has said.

“We view the deal mainly as a symbol of Canada’s commitment to Bombardier,” JP Morgan analyst Seth Seifman said in a note. “And that commitment could help with future programs as well.”

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