Bombardier Inc. is cutting another 7,500 jobs as the Canadian plane and train maker tries to rebuild profit amid deepening concern about production delays for its flagship C Series airliner and tough competition bearing down on its rail business.
Montreal-based Bombardier will announce a series of measures on Friday, including the job cuts, which represent about 10 per cent of its current global work force of 70,900.
The company said it will streamline its administrative and non-production operations and reorganize its design, engineering and manufacturing activities by creating new “centres of excellence” in various corners of the world. It said it has too many manufacturing sites producing similar components and wants to pick the sites best suited to specific work.
The reductions are expected to cut across Bombardier’s different business lines, from aerospace to train building, with the rail unit bearing two-thirds of the hit. Roughly 2,000 jobs are expected to be cut in Canada. Bombardier is a multinational with a presence on several continents.
The cuts come as the Bombardier is still waiting for the federal government to make a decision on the company’s request for a $1-billion investment. Quebec made a similar investment in 2015 although the money wasn’t disbursed until this year.
“It’s a very competitive landscape out there and we need to remain competitive,” chief executive Alain Bellemare said in an interview. “We’re doing this to become more productive, more efficient and bring our costs down in all of our businesses.”
After resolving Bombardier’s near-term cash issues and reducing the number of aircraft development programs on its burners, Mr. Bellemare is now trying to rebuild the company’s earnings and cash flow before tackling its $9-billion (U.S) debt. The CEO is aiming to boost the plane maker’s margin of earnings before interest and taxes to 7 to 8 per cent on revenue of $25-billion by 2020.
The company said it expects to generate recurring savings of about $300-million a year by the end of 2018 as a result of the moves. It anticipates recording a charge of between $225-million and $275-million, to be reported as a special item when accrued, starting in the fourth quarter of 2016 and continuing into 2017.
“This is a significant cut,” said AltaCorp Capital analyst Chris Murray. “It highlights some of the changes the company is having to make in order to restore sustainable profitability. The issue is whether or not these cuts actually have the capacity to restore that profitability given some of the weakness that they are seeing in some of their [business lines].”
With this latest reorganization, Bombardier shrinks further after a series of payroll cuts in recent years. This is the second cut of this magnitude this year alone. Bombardier announced in February it would lay off about 7,000 people across its business lines. That came after it eliminated 2,750 jobs in its corporate jet unit in 2015.
Bombardier set its train unit, called Bombardier Transportation, on a new course in 2015 by selling a 30-per-cent stake in the business to pension fund giant Caisse de dépôt et placement du Québec for $1.5-billion.
Although it makes sophisticated rail equipment used by people in cities across the world, the Berlin-based unit is a chronic financial underachiever and has been unable for years to deliver on its profit margin targets. Recent problems include repeated failures to deliver streetcars on time to the Toronto Transit Commission.
That has come as competition has heated up. The merger of China’s two state-owned rail companies, CSR Corp. and China CNR Corp., has created a new Asian industry giant that has been very aggressive in contract bidding. The newcomer has moved far beyond its home turf into European and North American markets and recently won a contract to supply subway cars for Chicago’s transit board.
Shares in Bombardier have been under pressure in recent weeks as investors fret over the latest setback for the C Series and worry over demand for the company’s corporate jets. The bump that the stock received after a $5.6-billion order from Delta Air Lines Inc. earlier this year, its biggest aircraft order to date, has since disappeared.
The company said last month the number of C Series planes it would deliver this year would be half of what was previously expected because of delays in engine shipments from supplier Pratt & Whitney. Several analysts called the trouble “a blip,” saying there is no technical problem with the engine.
But it nevertheless prompted queries about the company’s cash-flow situation; Bombardier said the development would increase cash burn by about $150-million this year. Based on the fact Pratt has several customers for the PW1000 engine, including Airbus Group SE, there is also “increasing risk that the schedule slip could extend into 2017-2018,” Cowen & Co. analyst Cai von Rumohr said.
Investors are equally concerned about the company’s corporate aircraft business. World gross domestic product growth rates and market indicators point to a delayed recovery and continued softness in the market for those luxury aircraft, Bombardier said in notes accompanying its second-quarter earnings report. The light business jet market in particular, in which Bombardier competes with its Learjet business, suffers from oversupply, Mr. Bellemare said in August. That in turn has affected pricing.
Bombardier formally cancelled development of a new Lear model, known as the Learjet 85, last October, taking a $1.2-billion writedown on the program. Some observers believe the company is now open to selling the business.
NICOLAS VAN PRAET
MONTREAL — The Globe and Mail
Published Friday, Oct. 21, 2016 5:00AM EDT
Last updated Friday, Oct. 21, 2016 8:59AM EDT