UPDATE 6-Bombardier delays C-Series flight, cuts train unit jobs

Wed Nov 7, 2012 5:32pm EST

* First flight of C-Series pushed back to June 2013

* Company will cut about 1,200 jobs in train unit

* Will take 4th quarter charge of up to $150 million

* Third quarter earnings $0.12 a share vs $0.10 estimate

* Shares drop 4.4 pct to close at C$3.45 on TSX (Adds Moody's outlook change paragraph 19, closing stock price paragraph 7)

By Susan Taylor

TORONTO, Nov 7 (Reuters) - Bombardier Inc has delayed by six months the inaugural flight of its C-Series jetliner, its first attempt to muscle into a market dominated by bigger rivals.

The news raised fresh concerns about future orders for the new plane on a day when Bombardier reported weaker-than-expected quarterly revenue and 1,200 job cuts in its rail unit. Bombardier shares tumbled 4.4 percent.

The Canadian plane and train maker blamed unspecified supplier delays for postponement of the first flight of the C-Series plane, which will compete with smaller aircraft from giants Airbus and Boeing Co.

The 100- to 149-seat aircraft will be Bombardier's biggest plane to date.

"We expect the market to remain highly skeptical until the plane actually flies," said National Bank Financial analyst Cameron Doers.

"New orders for the C-Series may also be elusive until there is more certainty on the entry-into-service date."

Executives at Bombardier, the world's No. 3 plane maker and largest passenger train maker, had already hinted at delays to the $3.4 billion project. But their latest announcement sparked concerns about the reliability of future forecasts.

Bombardier shares, the most heavily traded stock on the Toronto Stock Exchange, fell 4.4 percent to end at C$3.45, as a strong backlog and new orders partly offset the weak results.

Bombardier said in August it would consider itself on schedule if it was within three to five months of its first-flight target. Many analysts said a six-month extension would not be worrisome, but a longer delay would cause concern.

"What happens through time is you get a supplier that delays, then you get another one that delays and then in the end, you're getting components in the wrong sequence," Chief Executive Pierre Beaudoin said on a conference call.

"At one point it serves no purpose to get the parts in the wrong sequence, so then we re-harmonized the schedule."

The delay will mean penalties for some suppliers and from some customers, Beaudoin said, without providing financial details. But he said it will not push the program over budget.

Bombardier did not say which suppliers caused the delays.

It now targets the first flight of its 110-seat CS100 for June 2013, pushed back from the end of this year, with deliveries expected in mid-2014. The entry into service for Bombardier's 130-seat CS300 is still seen at the end of 2014.

NOT IN THE "OH NO" ZONE

"We've been waiting for the shoe to fall. It now has," said Scott Rattee, analyst at Stonecap Securities Inc.

"The C-Series remains a going concern. They've bought themselves a little bit of time ... It certainly has not slipped into the 'Oh no' zone yet."

Bombardier said its cash flow will not cover its planned $2 billion in aerospace spending this year as it invests heavily on its costly C-Series and LearJet85 development programs.

It now expects to use $500 million in free cash flow in 2012, against a previous neutral outlook.

"Capex is at peak level and should decline considerably starting in 2014," said BMO Capital Markets Fadi Chamoun, adding that $3.5 billion in liquidity should be adequate.

The news caught the attention of rating agencies. Moody's affirmed the company's main rating, but lowered its outlook to negative from stable, citing concerns about cash consumption.

RAIL CUTS

Bombardier said it will cut more than 3 percent of its rail unit workforce of about 36,000 and close a freight car plant in Aachen, Germany, which employs about 400 workers. Rattee described the move as prudent.

Bombardier expects a restructuring charge of up to $150 million in the fourth quarter for the rail cuts.

Slightly offsetting the negative news was a strong order book for both planes and trains, said Chamoun, as the company maintained its aircraft delivery guidance of 235 planes in 2012.

The total order backlog was $58.6 billion at quarter-end, up from $53.9 billion at the end of 2011.

The aerospace unit booked 83 orders and delivered 57 aircraft in the quarter, for a 1.5 book-to-bill ratio, said Sterne Agee analysts Peter Arment and John Sullivan.

The rail unit got $2.3 billion in new orders.

Bombardier said weak rail results and a stronger dollar contributed to a 6 percent drop in revenue in the quarter to Sept. 30.

Revenue fell to $4.3 billion from $4.6 billion in the same period last year, lagging the average analyst forecast of $4.66 billion, according to Thomson Reuters I/B/E/S.

Net profit rose to $212 million, or 12 cents per share, from $192 million, or 11 cents per share, a year earlier, lifted by gains on financing costs. Analysts had expected 10 cents per share.

Rail unit revenue fell 9 percent to $2.1 billion as contracts in Europe and other regions wrapped up, while orders remained in a start-up phase.

Revenue in the aerospace division was flat at $2.3 billion. ($1 = 0.99 Canadian dollar) (Additional reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Ted Kerr, Matthew Lewis, Janet Guttsman and Bernadette Baum)

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Comments (2)
Venerability wrote:
This is really a pretty good report, and I think most who follow the company will be satisfied with it.

First of all, analyst consensus as of a few days ago was 10 cents, not 11, so this is a 20 percent beat on the bottom line.

And a very tiny miss in revenues, which was broadcast at the last earnings call. Important metric is a big build in backlogs. And judging by recent news about contracts for which they are frontrunners, those backlogs may dramatically increase again in the next quarter and for 2013 as a whole. Hints of big new orders possible from South Africa, Saudi Arabia, India, China, Malaysia, Indonesia . . The whole world is stimulating via transportation projects!

Backlog may also increase as a result of new contracts due to Hurricane sandy damage, since Bombardier is the main supplier to the New York subway system, Boston subway system, New Jersey transit, Maryland rail, and Amtrak’s Acela on the Eastern corridor.

As expected and also broadcast widely, they are delaying their first C-series flight until it’s safe to make it. But since they are doing so much of their testing via simulations, we will probably get a steady stream of news about successful simulated flights from now on in. It’s already started, in fact, and is being widely glommed onto by the aerospace press around the world – which so far is highly impressed. I think they will stress that in their conference call this morning at 10.

Another piece of very good news, IMO, is their deciding to cut train division jobs in Europe, where the division is based, and – probably – shortly down the road announce that they are bringing them either to Canada, satisfying their restive labor force there, and/or to Plattsburgh, as a gift to Andrew Cuomo, an immense backer of the proposed high speed rail line between Manhattan and Toronto, Montreal, and Quebec City, with a possible spur to Buffalo and Niagara Falls.

I know some don’t like high speed rail, but it’s coming to both the US and Canada very soon now. C-series aside, Bombardier is going to have a steady growth in positive name recognition when – not if, when, IMO – it gets most of the work on the New York-Canada line and possibly at least some of it on Las Vegas-Los Angeles-San Francisco, which is also probably now on tap at last.

Nov 07, 2012 8:14am EST  --  Report as abuse
Venerability wrote:
I tried to get into the Comments and Questions queue at the conference call, but there were so many questions, I lost battery power on two phones before I made it to the head of the line!

As per usual, commentary has been skewed to the negative side with this company, NOT representing either what the majority of shareholders think nor what the majority of still very, very Bullish analysts think.

On the C-series obsession especially, Bombardier is doing so much better with its march to first flight than either Boeing or Airbus did with their recent launches, it should be lauded and applauded, not the opposite.

What I would have pointed out, if I had gotten into the Comments queue, is not only that technical aerospace people around the world have been consistently impressed with the C-series as it goes through its continuing simulated testing program, as I said above, but also that some shareholders and analysts remember very well what happened to Sukhoi last May, only six months ago.

Would Bombardier and its shareholders and stakeholders rather have a first flight that is safe and efficient and encourages orders for many years to come? Or would it rather move too soon and become Sukhoi?

Some of the press comments I heard were downright silly! Do they think Bombardier is dealing with one or two suppliers in North America – which is impossible nowadays? They are dealing with multiple suppliers – dozens – in countries all over the globe. This is a massive international project, as were Boeing’s and Airbus’s before it. Again, Bombardier is doing extraordinarily well, especially considering it is the Underdog on so many counts.

I also would have asked about additional revenues that might come in pretty much immediately on post-Hurricane Sandy rolling stock and maintenance orders, which I don’t think anyone did.

I might have asked about joint worldwide marketing efforts on the private jet side with Berkshire.

I might have asked about the Derby Crossrail controversy in the UK, which has heated up markedly lately and may now possibly result in the contract or big parts of it being taken away from Siemens and given to Derby.

I wouldn’t have asked – although everyone knows it may be coming – about Canada’s possibly asking for major Bombardier orders, including orders for the C-series, as a tacit quid pro quo for approval of big Energy takeovers in Canada by certain foreign powers.

In short, as both a long-time financial journalist and a former director of investor relations, I am still pretty much shocked at how easily the press is swayed by opinions and commentary hand-fed to them by those who either have Short positions or are working closely with those who do.

The financial press needs to become much more independent and skeptical and ask for the opinions of Bulls as well as Bears every single time it writes or speaks about this or any other “controversial” company and its stock.

Nov 07, 2012 12:05pm EST  --  Report as abuse
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