Bombardier to sell aerostructures operations in Belfast and Morocco

MONTREAL – The recovery that began five years ago remains turbulent for Bombardier Inc., which is selling its factories in Northern Ireland and Morocco and distancing itself from its 2020 financial targets.

A week after slashing its forecast for the current fiscal year, president and CEO Alain Bellemare, said Thursday that the figures already provided for 2020 did not constitute a proper forecast.

“These targets were set in place in 2015 to build a world-class organization,” he told reporters at the end of the annual shareholders’ meeting. “With the challenges ahead of us in the train segment, we are taking a cautious approach.”

The change of tone was poorly received by investors, as the transportation manufacturer’s shares fell 12 cents, or 5.13 per cent, to close at $2.22 on the Toronto Stock Exchange.

Bombardier Transportation is facing execution problems with five major contracts, which means that the railway division’s sales are expected to be US$750 million lower this year.

As a result, management wouldn’t confirm that by the end of 2020 consolidated revenues would be about US$20 billion and that the cash flows generated would be at least US$750 million as outlined last December during an investor day.

“We want to see the progress that will be made in the (transport) division in the coming weeks, months, before talking about 2020,” said Bellemare, when asked about the issue.

Although the company’s management has changed its tone, it shouldn’t lose all credibility, said Bellemare, citing an improvement in revenue and operating income since 2015.

Analysts weren’t totally convinced.

“Although management has indicated that it still believes it can reach the 2020 numbers, we believe this is risky and our estimates are lower,” RBC Capital Markets analyst Walter Spracklin wrote in a report.

At the same time, Bombardier will seek in the coming months to find buyers for its Belfast and Casablanca manufacturing plants, while consolidating its aerospace segment into one entity.

The two plants combined account for approximately half of the aerostructures business, which generated adjusted operating income of US$239 million in 2018.

The sale comes as Bombardier continues to withdraw from commercial aviation after having given up control of the C Series and selling the Q400 turboprop program and pilot training activities.

In the long run, some 3,900 employees are expected to move to the potential buyers. It also means that Bombardier will stop building the wings of the A220, the former C Series now controlled by Airbus. The rest of the aerostructures division’s activities will be concentrated in Montreal, Texas and Mexico.

The new Bombardier Aviation division will consolidate business jets and the regional CRJ aircraft _ whose future remains unclear _ along with the remaining component manufacturing activities under the leadership of David Coleal, who until now headed the business jet division.

Benoit Poirier, an analyst with Desjardins Capital Markets, said Bombardier could obtain US$400 million to US$700 million in proceeds from the sales.

Bellemare said the money will not be used to pay a dividend despite some investors making their point of view on the subject known at the annual meeting.

“We still have US$9 billion debt,” said Bellemare. “So the next step will be to look at this debt before thinking where we are going to invest.”

Bombardier’s intentions sparked an uproar in Northern Ireland, where the company has 3,600 employees, and where Airbus also makes parts for its A320 airplane. The Unite union urged the British government to take action to preserve jobs.

“Bombardier is just too important for Northern Ireland’s economy to provide a less-than-desirable solution,” Unite said in a statement.

Bellemare assured that the sale of the Belfast site was not related to Brexit, noting that the company still had 4,000 employees in its transport division in the United Kingdom.

As for its financial performance for the first quarter ended March 31, the company posted an adjusted loss of US$122 million, or seven cents per share, compared with an adjusted profit of US$35 million, or one cent per share a year ago. Revenues decreased 13 per cent to US$3.52 billion.

Analysts polled by Thomson Reuters Eikon expected an adjusted loss of one cent per share on revenues of US$3.62 billion.