MONTREAL (Reuters) - Bombardier Inc said on Friday it would cut 7,500 jobs, mostly in its train-making division, in a second round of layoffs announced this year, following extended delays and budget overruns in its aerospace business.
About two-thirds of the jobs are in Bombardier Transportation, the Germany-based rail unit which had already been slated to eliminate about 3,500 workers. The rest will be in aerospace, the company said in a statement.
Bombardier, which ended 2015 with 70,900 employees, said in February it would cut 10 percent of its workforce over two years, with nearly half of those jobs in the rail unit.
The unit, with a large staff in Europe, has struggled to deliver on some high-profile public transit contracts, including in Toronto.
Bombardier said it expected the layoffs would lead to recurring savings of about $300 million by end-2018. It will book restructuring charges of $225 million to $275 million as special items, beginning in the fourth quarter and through 2017.
The cuts are part of a broader turnaround plan backed by Canada’s second-largest pension fund, Caisse de depot et placement du Quebec, the rail unit’s largest shareholder, said spokesman Maxime Chagnon.
The Caisse, which secured three BT board seats after buying a 30 percent stake in the division in November for $1.5 billion, wants Bombardier to improve the unit.
In a telephone call, Bombardier Chief Executive Alain Bellemare said he did not expect the cuts, which include 1,500 workers in Quebec and 500 in the rest of Canada, to affect talks with the federal government over a $1 billion investment in its CSeries mid-range jet program.
Ottawa is under pressure from Quebec to match the province’s $1 billion investment in the narrowbodies. Navdeep Bains, the cabinet minister heading negotiations, reiterated Ottawa’s pledge to aid Bombardier on Friday, although no deal has been finalized.
GOVERNMENT WANTS ASSURANCES
Bains said the government wants assurances on jobs, investment in research and development and ensuring the company’s headquarters stays in Canada.
Asked by the Canadian Broadcasting Corp. whether he would insist Bombardier maintain certain employment levels in return for aid, Bains replied, “There are market conditions at play and we have to be very careful about that”.
Bellemare has pushed to improve profitability since he was hired in 2015 after the new CSeries jet, years late and billions over budget, had loaded Bombardier down with debt.
“I think it has to be very clear that the decisions we are taking are not related to our discussions with the federal government,” Bellemare said.
Quebec Premier Philippe Couillard, while lamenting the loss of jobs, said his government had made the right decision to invest in the CSeries program where Bombardier is now hiring.
In a note, Macquarie analyst Konark Gupta estimated Bombardier would hire about 3,700 workers for programs like the CSeries and its Global 7000 business jet, which is expected to make its first flight next month.
The company has faced competition from China Railway Rolling Stock Corp, formed by the merger of the country’s two top train makers. In September, Bombardier said it would join forces with the Chinese company to bid on international contracts.
“There’s a lot of questions around the health of some of their end markets,” AltaCorp analyst Chris Murray said in a research note. He cited speculation over whether Bombardier might dispose of units such as the weak-selling Learjet small business jet division.
CIBC analyst Kevin Chiang said in a note the announcement showed Bellemare could make changes at the company controlled by the Bombardier-Beaudoin family.
“A concern when (he) took over ... was whether he would be handcuffed by various stakeholders in making the necessary ‘tough decisions,’” he wrote.
In Northern Ireland, where about 5,000 Bombardier employees work, Economy Minister Simon Hamilton said he would fight to save local jobs.
Last month, Bombardier halved the 2016 delivery forecast for the CSeries and said it expected full-year revenue at the lower end of its previously announced range.
Bombardier shares closed down 2 cents Canadian at C$1.76.
Additional reporting by Allison Martell, Matt Scuffham and Alastair Sharp in Toronto and Leah Schnurr in Ottawa; Editing by Richard Chang and Cynthia Osterman
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