Bombardier Inc.’s new C Series jet promises reduced fuel burn. But there’s another kind of combustion – a more worrisome one – that many observers and analysts are focused on these days: cash burn.
Is Bombardier – with the delays, engine problem and rising costs of the C Series as well as challenges on the Learjet 85 and other platforms – burning through its cash too quickly?
Last week’s announcement of an aerospace division restructuring that includes the slashing of 1,800 jobs is a positive sign that management is moving to address concerns.
Still, some uncertainty remains as to what second-quarter earnings – out this Thursday – will reveal about the plane and train maker’s balance sheet.
“Liquidity concerns top the list with investors unwilling to step in front of Q2/14 results with a potential cash burn risk with elevated new program costs,” RBC Dominion Securities analyst Walter Spracklin wrote in his second-quarter preview.
“However, should cash burn come in relatively in line, then we believe sentiment could start to turn more positive.”
Mr. Spracklin is anticipating cash burn of $400-million (U.S.) in the second quarter, following $915-million in the first, which aligns with management’s full-year cash flow indications and keeps Bombardier in a viable liquidity position by the end of 2014.
A key factor is how quickly Bombardier can return to C Series flight testing after about two months’ delay due to an engine-failure incident, observers have pointed out.
“The C Series delays, a levered balance sheet, and continued muted recovery in the core business aviation market are weighing further on the already tight engineering and cash resources of the company,” BMO Nesbitt Burns analyst Fadi Chamoun said in a recent second-quarter preview.
Cormark Securities’ David Newman is more positive. “We believe the market is gaining renewed confidence in the CSeries,” he said in a recent note.
“More orders could be on the way, perhaps augmented by the recommencement of flight tests in the coming weeks.”