Bombardier Inc. is trying to reassure investors it can break even in the second half of 2020 – even as the COVID-19 crisis has caused hundreds of millions of dollars in unexpected losses and Quebec’s provincial pension plan has stepped in with more money for the company.
The plane and train manufacturer said it had negative free cash flow of US$1.6-billion in the first quarter, nearly twice the shortfall analysts were expecting, with the extra amount nearly all due to the pandemic. The company could not deliver business aircraft to its customers, and new orders – and the payments that come with them – dried up, chief executive officer Éric Martel said on Thursday.
Bombardier defines free cash flow as the money it generates from its operations minus the amount it spends on capital goods and other long-term assets it uses for its business.
That level of “cash burn” will repeat in the second quarter, Mr. Martel said, with business hitting a low point. Chief financial officer John Di Bert said revenues will be down nearly 50 per cent in the second quarter from 2019.
Mr. Martel said that while most analysts predicted a 30 per cent to 35 per cent "industry-wide reduction” in 2020 for business-jet deliveries because of the pandemic, Bombardier would stop short of embracing that view, particularly after it led the industry in first-quarter deliveries.
“While this feels directionally right for the short term, we think it’s still too early to call the market with any certainty,” he said. “We’ve seen limited cancellation in our backlog and remain in close contact with all our customers.”
Mr. Martel also revealed that Bombardier negotiated a new investment of US$386-million in its train-car manufacturing division in the quarter from provincial pension fund Caisse de dépôt et placement du Québec. He said this provided "additional flexibility as we managed through the crisis.”
The Caisse invested US$1.5-billion in that division, Bombardier Transportation, in 2015, and will become the largest shareholder of Alstom SA when that company acquires it in 2021. The Caisse’s total investment is now US$1.94 billion, and it owns 36.3 per cent of Bombardier Transportation.
“We invested so that the company can weather COVID-19 and be better positioned for the economic recovery – extraordinary circumstances call for extraordinary measures,” Caisse spokesman Maxime Chagnon said in an e-mail on Thursday. “We believe infrastructure and mobility remains a key sector of the world economy over the long term, and they will play a key role in the economic recovery, as was the case in the past.”
Investors sent the already damaged shares down 15 per cent by day’s end, to 45 cents. The company’s stock has lost three-quarters of its value so far in 2020.
Bombardier said it started the year with US$2.6-billion of cash on hand, which, combined with the sales of various businesses, will keep it afloat. Cash on hand dropped by US$600-million in the first quarter, and “available short-term capital resources” – cash plus undrawn amounts on the company’s lines of credit – fell by about US$1-billion, to just less than US$3-billion.
Revenue was up just less than 5 per cent, to US$3.69-billion, and the company posted a net loss of US$200-million, or 11 US cents a share.
"We’re managing our operations with discipline and we’re making adjustments necessary to protect our balance sheet and build added flexibility,” Mr. Di Bert said.
Bombardier withdrew its financial guidance for the year on March 24 because of the pandemic. However, Mr. Di Bert said on Thursday, “from what we see today, as we stabilized operations particularly in the first half, I would expect that the second half would start to break even or be positive on cash flow.” The company is gradually restarting operations around the world.
The company plans to sell nearly all of its operations to focus on making small business jets. Mr. Martel said all of those sales are still on track.
Mr. Di Bert said the company is in full compliance with the covenants on its bank debt and is briefing the lenders on its progress. Bombardier could pledge inventory as collateral for more borrowing, he said. When asked if the company is seeking help for its operations abroad, he said it is talking with governments in other countries. “To the extent that it was important for us to have some support, we would have open lines of communication and dialogue,” he said.
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