(Adds credit analyst comments, updates stock move)
By Solarina Ho
May 1 Bombardier Inc on Thursday
reported a sharp increase in capital spending, sparking concern
about the company's cash burn rate as it continues to pour money
into its CSeries aircraft program.
The cash burn, combined with weaker-than-expected quarterly
results, sent shares of the Canadian aircraft and train maker
into a tailspin. Shares sank over 8 percent before paring losses
to close the day down 5.9 percent at C$4.15.
Bombardier is spending billions to develop the CSeries, a
high tech narrow-body plane to compete with smaller passenger
jets from Boeing Co and Airbus Group. The
program has been delayed four times and costs have climbed.
Bombardier said its free cash flow use rose more than 35
percent in the first quarter to $915 million from $590 million a
year ago, causing some concern among equity analysts and
shareholders. The company however, attempted to allay those
fears on a conference call.
"We don't anticipate to have to go back to any sources to
increase our liquidity. We have ample liquidity to meet our
plan," said Chief Executive Officer Pierre Beaudoin, reaffirming
the company's full-year capital expenditure forecast of between
$1.6 billion and $1.9 billion. "We don't think we need to borrow
government money on this program, that's already been done."
Some debt market analysts concur that the company remains on
a solid financial footing.
"The company used significantly more free cash flow in Q1
than the street was expecting and that seems to have immediately
shifted concerns to liquidity for certain investors," said
Citi's Credit analyst Manish Somaiya.
He added that liquidity was strong and noted little change
in Bombardier's bond prices, however, with cash flow likely to
improve over the coming months, "I don't see a need for the
company to do another bond issue," Somaiya said.
Montreal-based Bombardier said it had short-term capital
resources of $3.9 billion, including cash and cash equivalents
of $2.5 billion as of March 31. Last month, Bombardier issued
$1.8 billion in notes, with some proceeds going to refinance
about $1.3 billion of existing debt.
Beaudoin reiterated the company's expectation it will reduce
investment spending as the year progresses and have good cash
flow by the fourth quarter, a typically strong delivery period.
"The cash burn has been a topic of concern for some time,"
said Raymond James Ltd analyst Steve Hansen. "They've done a
good job at assuaging some of the concerns here over the short
term, although whenever you see a headline number as large as it
was in the quarter, it probably brings those concerns back to
Bombardier posted lower-than-expected first-quarter revenue,
which some analysts attributed in part to weaker pricing in
business aviation. Revenue in the aerospace unit fell 9 percent
to $2.1 billion, while sales in the transportation business rose
nearly 10 percent to $2.3 billion.
Total revenue rose about 2 percent to $4.35 billion, but
fell short of the average analyst estimate of $4.58 billion,
according to Thomson Reuters I/B/E/S.
Bombardier said it was making progress with the CSeries,
with 280 hours of flight testing so far. The fourth test plane
is expected to complete its first flight in the coming weeks.
The CSeries has 203 firm orders so far and Beaudoin said he
was "very confident" it will reach its target of 300 firm orders
by the time the first plane enters service.
Bombardier Aerospace's backlog totaled $38.5 billion
compared to $37.3 billion at the end of December. Order backlog
in the transportation business totaled $38.4 billion, up from
The company delivered a total of 56 aircraft in the quarter,
compared to 53 a year earlier. Bombardier, which announced in
January it would cut 1,700 aerospace jobs, said it has downsized
by about 1,430 and that rest of the cuts would occur over the
next couple of quarters.
The company's net income fell to $115 million, or 6 cents
per share, in the quarter, from $148 million, or 8 cents per
share, a year earlier. Excluding one-time items, Bombardier
earned 8 cents per share, in line with the analysts' estimates.
(Additional reporting by Euan Rocha, Natalie Harrison and
Narottam Medhora; Editing by Meredith Mazzilli, Leslie Adler and