The FINANCIAL — Bombardier on February 17 reported its financial results for the fourth quarter and the year ended December 31, 2015.
“We are turning Bombardier around to make this great company stronger and more competitive,” said Alain Bellemare, President and Chief Executive Officer. “Over the past year, we renewed our leadership team and developed a clear plan to significantly improve our performance. We de-risked major development programs and stabilized the company, securing our liquidity position and taking a series of actions to rebuild margins.”
“With the certification of the CS100 aircraft, we also reached the last key milestone before the entry-into-service of the C Series, while ramping up to full production. And today, with the signing of Air Canada for the leading-edge CS300 aircraft, we add a major international airline customer based in North America to complement our orders in both Europe and Asia. Air Canada’s commitment is a strong endorsement of this outstanding aircraft. It will create significant value for Air Canada and its customers and will become a catalyst for future orders in North America and around the world,” added Mr. Bellemare.
For 2016, the company expects to generate between $16.5 billion and $17.5 billion in revenues, with EBIT margin improvements across Transportation, Business Aircraft and Aerostructures, while Commercial Aircraft ramps up the C Series program. EBIT is expected to be within a range of $200 million to $400 million, while free cash flow usage materially improves, at $1.0 billion to $1.3 billion for the year, according to Bombardier.
Air Canada signs for up to 75 C Series aircraft
Bombardier and Air Canada announced today that the parties have signed a Letter of Intent (LOI) for the sale and purchase of 45 CS300 aircraft with options for an additional 30 CS300 aircraft, including conversion rights to the CS100 aircraft. Upon execution of a firm purchase agreement, Air Canada will become the first mainline, international network carrier based in North America for the C Series family of aircraft. The all-new aircraft will start delivering in 2019.
Based on the list price of the CS300 aircraft, a firm order would be valued at approximately $3.8 billion. With this significant agreement, Bombardier has now received orders and commitments for a total of 678 C Series aircraft.
Global workforce optimization
Bombardier announced today that it will take steps to optimize its workforce with a combination of a manpower reduction and strategic hiring throughout 2016 and 2017. As the company evolves over the next two years, its global workforce will be reduced by a targeted 7,000 production and non-production employees, including 2,000 contractors. This reduction will be partially offset by hiring in certain growth areas, notably to support the ramp-up of strategic programs and projects worldwide, such as the C Series. These adjustments will enable Bombardier to resize its organization in line with current business needs and to increase its competitiveness.
The decision to optimize the organization is based on an in-depth review of the company carried out over the past year:
As previously communicated, production rates have been modified for some aircraft models due to macroeconomic conditions. As a result, Bombardier is adapting its workforce to meet market demand.
Major aerospace development programs and projects at Transportation, which mobilized numerous employees, are ramping down as expected. Bombardier is resizing its manpower to match future workloads.
Finally, the company’s transformation plan is taking hold, driving productivity across the entire organization.
In parallel, Bombardier intends to hire in certain growth areas:
The C Series aircraft program continues to ramp up its production rate and to win orders, generating new jobs at the Bombardier facility in Mirabel, Québec. The number of employees directly assigned to the C Series program has increased in the past few months, reaching a total of 3,450 employees worldwide, and is expected to keep growing over the next few years.
In addition, Bombardier Transportation’s impressive $30.4-billion backlog includes certain large orders which will mobilize additional manpower in regions where it has a limited presence.
“Throughout 2016 and 2017, we will adapt our global manpower to current market conditions, while hiring to support growing segments, such as the C Series,” said Mr. Bellemare. “These adjustments are always difficult. They are important to ensure that, with our 64,000 employees worldwide, we continue to create superior value for our customers, be more competitive, and deliver improved financial performance,” he added.
Impacted positions are mostly based in Canada and Europe, where the company’s aerospace and rail transportation activities are concentrated. Bombardier will support affected employees and will provide them with resources to help them manage through their transition.
The reductions will begin in the coming weeks and will be implemented over a period of two years. Throughout 2016, on a full year basis, Bombardier expects to record $250 million to $300 million in restructuring charges that will be reported as special items when accrued.
“Bombardier is in a better place today and we are on the path to greater profitability. We are engaged in a rigorous process that will increase our earnings power and cash flow generation over the next five years. And with today’s landmark commitment from Air Canada for up to 75 CS300 aircraft, we are building positive momentum to successfully compete. The C Series is the best aircraft in the 100- to 150-seat class segment. Its innovative all-new design makes it the lowest operating costs, greatest cabin comfort and the most environmentally-friendly aircraft in the industry. We now have a clear plan in place and are applying disciplined execution to make Bombardier stronger,” concluded Mr. Bellemare.
Share consolidation
Bombardier also announced today that it plans to present a proposal to its shareholders for a consolidation (also known as a “reverse stock split”) of its issued and unissued Class A shares (multiple voting) (the “Class A shares”), and Class B shares (subordinate voting) (the “Class B subordinate voting shares”), at its annual and special meeting planned for spring 2016 (the “Share Consolidation”). The consolidation ratio will be selected by Bombardier’s Board of Directors from within a range of ratios, subject to shareholder approval, which would be expected, at that time, to result in an initial post-consolidation share price in the range of $10 Cdn to $20 Cdn per Class A share or Class B subordinate voting share. Assuming receipt of shareholder and Toronto Stock Exchange approvals, the Share Consolidation, if any, would be completed at such time as the Board of Directors shall deem appropriate.
Bombardier believes that a higher share price resulting from the proposed consolidation would heighten the interest of the financial community as it would broaden the pool of investors that may consider or may be able to invest in Bombardier.
Implementation of the Share Consolidation is subject to a number of conditions, including but not limited to, Toronto Stock Exchange and shareholder approval, and subject to the Board of Directors’ authority, notwithstanding approval of the Share Consolidation by shareholders, to determine in its discretion not to proceed with the Share Consolidation, without further approval or action by, or prior notice to, shareholders. There can be no assurance that the Share Consolidation will be implemented as proposed or at all, or as to the timing thereof, or that the Share Consolidation will result in the contemplated initial post-consolidation share price of Class A shares or Class B subordinate voting shares.
SEGMENTED RESULTS AND HIGHLIGHTS
Business Aircraft
Effective June 15, 2015, David M. Coleal became President, Bombardier Business Aircraft.
Following an in-depth review to validate all aspects of the Global 7000 and Global 8000 aircraft program, the entry-into-service of the Global 7000 aircraft is now expected to occur in the second half of 2018.
On October 28, 2015, due to the lack of sales following the prolonged market weakness, Bombardier cancelled the Learjet 85 program. As a result, the company recorded a charge of $1.2 billion in special items in the third quarter of 2015, mainly related to the impairment of the remaining Learjet 85 aircraft program development. The company remains committed to the Learjet family of aircraft.
On November 2015, the Challenger 650 aircraft entered into service.
Bombardier continues to restructure and enhance Business Aircraft’s business model to improve long-term profitability. Subsequent to the end of the fiscal year, on January 13, 2016, the company announced that it has completed initiatives to increase the number of direct-to-market channels, including termination of select sales representative and distribution agreements, and to restructure customer commercial agreements, resulting in the cancellation of 24 firm orders, valued at approximately $1.75 billion based on 2015 list prices, with an additional cancellation of 30 optional orders. Mainly as a result of these completed initiatives, in the fourth quarter of 2015, Bombardier recorded $327 million in special items.
Commercial Aircraft
Effective April 9, 2015, Fred Cromer became President, Bombardier Commercial Aircraft.
In October 2015, Bombardier Inc. entered into a memorandum of understanding with the Government of Québec, who will invest $1.0 billion in the C Series aircraft program in return for a 49.5% equity stake in a newly created limited partnership to which Bombardier would transfer the assets, liabilities and obligation of the C Series aircraft program. This newly created limited partnership will carry on the operations related to the C Series aircraft program and will be consolidated in the Company’s financial results. The execution of the definitive agreements and the disbursement of the investment are expected to take place in the second quarter of 2016, subject to the closing conditions. The Government of Québec’s interest in the partnership will be redeemable at Bombardier’s option, in certain circumstances.
Following the completion of an in-depth review of the C Series aircraft program as well as discussions with the Government of Québec, which resulted in the memorandum of understanding, the Company recorded a charge of $3.2 billion in special items in the third quarter of 2015, mainly related to the impairment of aerospace program tooling. The Company continues to believe that the C Series aircraft program meets specific market requirements and that it has long-term market potential.
On December 17, 2015, the CS100 aircraft was awarded type certification from Transport Canada, paving the way for the delivery and entry-into-service of the aircraft with first operator Swiss International Air Lines (SWISS) expected in the second quarter of 2016.
Aerostructures and Engineering Services
Bombardier Transportation
On April 14, 2015, the V300ZEFIRO Italy very high-speed train received homologation and successfully completed its maiden trip from Milan to Rome before entering commercial service in June 2015.
In November 2015, Bombardier Inc. entered into a definitive agreement with the Caisse de dépôt et placement du Québec (CDPQ) for a $1.5-billion convertible share investment in Bombardier Transportation’s newly-created holding company, Bombardier Transportation (Investment) UK Ltd (BT Holdco). The shares will be convertible into a 30% common share equity stake of BT Holdco, subject to annual adjustments related to performance. BT Holdco will continue to be controlled by Bombardier Inc. and consolidated in its financial results. The investment was completed on February 11, 2016.
Bombardier Transportation recorded a strong order intake of $8.8 billion across all product segments and geographic regions, leading to a book-to-bill ratio of 1.1 for the fiscal year and bringing the backlog to $30.4 billion at year end.
During the year, Bombardier Transportation strengthened its position in the Chinese market:
It signed an agreement with the New United Group (NUG) to establish a joint venture for signalling and rail control in China.
Bombardier-Sifang Transportation, a Chinese entity in which Bombardier holds a 50 percent interest, was awarded contracts with China Railway Corp. (CRC) to supply 15 CRH380D very high-speed trains valued at approximately $381 million and 80 CRH1E-250 high-speed new generation sleeper train cars valued at approximately $165 million, and has delivered the first very high speed train to its customer, Shanghai Railway Bureau.
Bombardier Transporation’s Chinese joint venture, CSR Puzhen Bombardier Transportation Systems Ltd., won its first contract for an INNOVIA APM 300 automated people mover (APM) to be delivered to its customer Shanghai Shentong Metro Co. Ltd.
On December 9, 2015, Laurent Troger became President, Bombardier Transportation.
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