| TORONTO, July 30
TORONTO, July 30 Bombardier Inc's
unexpected aerospace restructuring announcement last week casts
an uncomfortable light on the division's ongoing struggles, with
credit rating firms uncertain about its longer term prospects.
The restructuring, which was announced July 23, eight days
before the release of second-quarter results on Thursday, is the
latest bad news for the beleaguered unit, bruised in recent
years by multiple delays in its cash-draining CSeries program
and by shrinking market share for its existing aircraft
In the reorganization, Bombarier will cut 1,800 jobs and
split aerospace into three units.
Analysts say the action is a prudent step that will
streamline bloated operations, offer more transparency on profit
and margins, and potentially save the company more than $100
But ratings agencies still see risk as the company continues
to burn through a substantial amount of cash to pursue the
"There is now more of a risk than before - even higher
costs, which could lead to additional debt, additional cash
burn, additional liquidity issues," said DBRS Assistant Vice
President Viktor Vorobiev, who in November was the first to
downgrade the Montreal-based aircraft and train maker.
"There's a greater chance of uncertainty for sure."
Bombardier's shares, which lag far behind those of its peers
as well as the Toronto Stock Exchange's S&P/TSX composite index,
have slumped more than 20 percent since the beginning this year,
and ended trading on Wednesday at C$3.67, up 7 Canadian cents.
"The CSeries is testing patiences right now ... Before it
enters into service, the market will be skeptical about the
contributions," said Konark Gupta, an analyst with Macquarie
The ambitious CSeries program, which Bombardier hopes will
dominate the 100-to 150- seat market, is already 18 to 24 months
Spending on the all-new aircraft, which competes with the
small jetliners made by Boeing Co and Airbus, has soared above
Meanwhile, some analysts have also noted that while
Bombardier's market share in regional jets and turbo props has
improved somewhat this year, it has nonetheless shrunk in recent
The rising costs and setbacks to the CSeries will continue
to put stress on cash flow, said Evan Mann, an analyst with
Gimme Credit, which does independent research on corporate
"At some point, they're probably going to have to borrow a
little more debt to get this product launched and just to get it
to profitability may take longer than expected. I'm not sure all
of that is baked into the current ratings," said Mann. "There
could be a ratings downgrade before all of this is over."
Credit rating agencies DBRS, Standard & Poor's and Moody's
have all downgraded Bombardier sometime in the last nine months.
DBRS' Vorobiev, whose November rating incorporated many of
the negative news this year, said the spotlight on Thursday will
be all on the commercial aerospace division.
"(The restructuring) just shows you how off some of the
previous expectations were ... We are now getting a better
insight as to exactly how wrong they were," he said.
(Reporting by Solarina Ho; Editing by Steve Orlofsky)