Bombardier Inc. is putting the brakes on discretionary spending in its aerospace division in order to preserve cash for two key aircraft-development programs.
In a memo to all staff obtained by The Globe and Mail, Mairead Lavery, vice-president of finance for the aerospace division, said the group’s “performance in cash generation was not in line with budget for the first six months of the year.” Because Bombardier has limited control over when it receives cash from customers, it must exercise stricter control over discretionary spending, she said.
Consequently, the company has told staff to rein in spending through a range of measures, including cancelling off-site meetings, suspending new hiring, and even cutting all funding for Christmas parties. Spending on consultants is to be reduced or delayed, most training is suspended, there will be no office renovations, and all capital spending will have to get senior management approval.
And hitting particularly close the home for the transport giant: most travel has been suspended.
The clampdown on spending underscores the lengths firms are going to in the current low-growth economy to keep costs down and ensure cash is earmarked for the best chance of solid returns. Bank of Canada Governor Mark Carney said last month many Canadian companies are sitting on excessive cash piles that should be deployed for growth opportunities.
Bombardier spokeswoman Haley Dunne said the firm is being careful with cash because the aerospace division is “in a period of peak spend for several of our development programs.”
Currently, Montreal-based Bombardier is testing the systems on its new C Series jetliner, which will have 100-149 seats. It hopes to take the first flight by the end of the year and begin deliveries some time in 2013. It is also developing the new Learjet 85 business jet, which is also set for delivery next year.
The memo was a “reminder to employees” to focus on business priorities and take a pause in discretionary spending, Ms. Dunne said. “We are still going to celebrate Christmas, but in a different way that is not related to our cash.”
There is no specific amount of cash the company is trying to save, Ms. Dunne said. “This is more of an awareness exercise.”
Bombardier had about $2.5-billion in cash on June 30, among the highest cash hoards among Canadian public companies. However, this was down from $3.4-billion on Dec. 31. The aerospace division used up $504-million in cash in the second quarter, after $572-million in cash usage in the first quarter of the year.
In its second-quarter conference call last month, Bombardier’s chief financial officer Pierre Alary said the company expects “third-quarter free cash flow to be essentially neutral, while the fourth quarter should be very strong.”
The company makes large investments in creating new aircraft, and it can be a long time before money starts to flow in from product sales. In her memo, Ms. Lavery said that “generating free cash flow is an important commitment we have made to cover the historically high level of investment in product development.”
The austerity program will be in place until Jan. 15, when it will be reviewed.