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Bombardier shakeup means more ‘accountability’

File photo of Pierre Beaudoin, chief executive of Bombardier Inc.

Fred Lum/Fred Lum/The Globe and Mail

The shakeup at Bombardier Inc.'s aerospace division appears to be a step in the right direction, but it also raises concerns that there's more bad news is to come, some analysts say.

Montreal-based Bombardier said late Wednesday it is splitting aerospace – currently made up of commercial aircraft and business aircraft – into three divisions reporting directly to chief executive officer Pierre Beaudoin.

A third unit besides commercial and business is being created: aerostructures and engineering services, which the company hopes to build as an important revenue generator.

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The company also said the restructuring will result in the loss of 1,800 jobs not directly related to production, and Bombardier Aerospace president Guy Hachey is stepping down.

"The new structure will create more direct responsibility and accountability, with a side benefit of greater transparency for investors, as we will finally be able to disaggregate the performance of the various aerospace units, especially commercial versus business jet, with commercial continuously challenged, in our view," Cormark Securities analyst David Newman said in a research note Thursday.

Desjardins Securities analyst Benoit Poirier said in a note that the timing of the reorganization announcement a week before Bombardier unveils second-quarter earnings "creates uncertainties regarding these changes ahead of [second quarter] results."

Other analysts have questioned whether the sudden departure of Mr. Hachey signals there are more problems to be ironed out in aerospace or further delays or sales reversals for Bombardier's high-stakes C Series passenger jet program.

The reorganization takes place against a backdrop of delays, a halt in flight testing and cost runups in the C Series program.

The plane and train maker has also experienced difficulties in its new Learjet 85 platform and on other programs.

Mr. Poirier noted that Bombardier announced the layoff of 1,700 Bombardier Aerospace employees in January – a seemingly positive move – but three weeks later unveiled disappointing fourth-quarter margins and guidance for 2014-2015.

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The streamlining announced Wednesday is a neutral development, Mr. Poirier said. "On the positive side, management is adopting a lighter corporate structure that should have positive implications on margins."

The job cuts could produce about $136-million (U.S.) in annual savings and a 1.3-per-cent increase in margins on an earnings before interest and tax (EBIT) basis, he said.

"Moreover, we believe the splitting of Bombardier Aerospace into three divisions will provide more visibility on the company's revenue and margins, which should help investors to understand the division's growth potential and profitability drivers."

Mr. Newman said the reorganization could make it easier to sell a division if Bombardier "has to go to the chopping block."

A sale of the commercial unit, perhaps to the Chinese, would be a "value-creating event," said Mr. Newman.

The generally solid performance of Bombardier's higher-margin business aircraft operations has been in stark contrast to less-than-stellar results on the commercial side, many analysts have noted.

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To offset maturing markets for its regional jets, Bombardier is betting big on the success of its C Series plane. But the program has been best by delays, engine failure during ground testing of one of the flight-test jets, sluggish sales, rising costs and increased competition in the 100- to 149-seat category from Boeing Co. and Airbus SAS.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More


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