Bombardier delays C-Series flight

TORONTO Thu Nov 8, 2012 6:45am EST

A scale model of a CS100 Bombardier airplane is displayed beside a mock-up of the future CSeries Bombardier aircraft at the Bombardier Inc. Montreal offices September 14, 2009. REUTERS/Christinne Muschi

A scale model of a CS100 Bombardier airplane is displayed beside a mock-up of the future CSeries Bombardier aircraft at the Bombardier Inc. Montreal offices September 14, 2009.

Credit: Reuters/Christinne Muschi

TORONTO (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 EAD.PA and Boeing Co (BA.N).

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

"We expect the market to remain highly sceptical 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 September 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. (Additional reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Ted Kerr, Matthew Lewis, Janet Guttsman and Bernadette Baum)

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