UPDATE 2-Bombardier cuts 1,700 jobs to save cash after jet delays
(New throughout, adding analyst comment, details on CSeries and Learjet delays, cash position)
By Susan Taylor
TORONTO Jan 21 (Reuters) - Canada's Bombardier Inc said on Tuesday it will cut 1,700 aerospace jobs, or more than 4 percent of the unit's staff, as it pushes to preserve cash after costly setbacks in the development of two new jets.
Montreal-based Bombardier, which plans to eliminate 1,100 jobs in Canada and 600 in the United States, said it needs to reduce expenses while making major investments in its new CSeries commercial and Learjet 85 business jets.
Shares of the company, which has delayed the launch of its $3.9 billion CSeries four times and last year pushed back the delivery of the Learjet 85 to mid-2014, were down about 3 percent to C$3.98 on Tuesday.
"It's hard to believe that they'd be laying off this level of people without the financial necessity of doing it," said Richard Aboulafia, vice president of aviation consultancy Teal Group. "In other words, this speaks to a real issue in terms of raising more money to complete the (CSeries) program."
Bombardier, which had approximately C$4 billion ($3.64 billion) in cash and equivalents in October, will announce its fourth-quarter results and outlook on Feb. 13.
In a copy of the memo to staff, seen by Reuters, the company warned stricter spending controls were needed to ensure it can "consistently meet our budget throughout 2014."
"Cash has once again risen to the top of investor concern," RBC Capital Markets analyst Walter Spracklin said in a note, citing the CSeries delay and C$1.7 billion in debt maturing in 2016. Cash concerns were confirmed last week, he added, when rating agency Fitch downgraded Bombardier.
"You can look good to people who provide you with cash by bringing in orders. And if you can't do that, you desperately cut costs," Aboulafia said. "That's not a happy picture."
Orders for Bombardier's commercial and business jets fell 19 percent in 2013, in what the company called a "challenging year for aviation," while business jet deliveries lagged forecasts due to Learjet delays.
"There's definitely reason to be concerned," said Stonecap Securities analyst Scott Rattee. "The layoffs confirm ... they are very concerned about their cash position."
Bombardier said there is no specific cost-savings target associated with the job cuts, which Bombardier spokeswoman Haley Dunne said will affect both permanent and contract employees and both union and non-union staff.
Cormark Securities analyst David Newman estimated annual savings from the job cuts at about C$125 million.
The company, which notified employees about the cuts in an internal memo on Tuesday morning, said aerospace jobs will be eliminated in sectors including manufacturing, engineering, sales and support.
"This is all with the goal of assuring our long-term success," Dunne told Reuters. "It's just part of the overall continued focus we're putting on managing our costs prudently so that we can support our investments."
Of the 1,700 jobs, 300 had already been cut in December, Dunne said, adding that Bombardier would try to match employees whose jobs were being eliminated with a "few hundred" positions it is currently trying to fill.
Bombardier's aerospace unit has 22,200 of its 38,350 global aerospace employees in Canada and 5,700 in the United States. Operations in Montreal will see the bulk of the 1,100 job cuts, Dunne said. A Wichita, Kansas newspaper reported that 550 jobs were being cut at Bombardier's Learjet plant there.
"The cuts come as an absolute surprise, we were shocked in fact, cause things are going pretty good at the workplace," said Roland Kiehne, president of the Unifor local that represents some 2,000 unionized workers at Bombardier's aerospace manufacturing site in Toronto.
($1 = 1.0979 Canadian dollars) (Additional reporting by; Solarina Ho and Euan Rocha in Toronto; Editing by Jeffrey Benkoe, Peter Galloway, Jeffrey Hodgson and Nick Zieminski)
- Missing jet may have strayed toward Andaman Sea: Malaysian air force |
- Malaysia military source says missing jet veered to west |
- Toddler found with heroin at New Jersey daycare center
- Ukraine appeals to the West as Crimea turns to Russia |
- Special Report: How China's official bank card is used to smuggle money |