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Aviation History
2003
2003 - 0775.PDF
HEADLINES BUSINESS GRAHAM WARWICK / WASHINGTON DC Bombardier halts drive for growth Canadian manufacturer to raise equity and sell assets as $417m loss prompts change in focus towards consolidation Bombardier has unveiled a sweep ing restructuring designed to strengthen its balance sheet and restore investor confidence. Charges related to the restructuring plunged the Canadian manufac turer to a C$615 million ($417 million) net loss for the financial year ended 31 January, despite an 8.5% increase in revenues to C$23.7 billion. New Bombardier chief executive Paul Tellier has redirected the com pany from high growth to consoli dation, concentrating on two "profitable" lines of business - aerospace and transport. "As opposed to growth for growth's sake it is time to take a breather and make money," he says. "The major investments are behind us," Tellier says, a clear sign that the pace of new product development will slow. The restructuring includes an immediate equity offering of at least C$800 million and more than C$1.5 billion in asset sales, includ ing the Skidoo/Seadoo-making Recreational Products division and the Defence Services business, which comprises the NATO Flying Training in Canada programme and contracts to maintain Canadian Forces' aircraft, including Boeing CF-18s. Most significant is a change in the way aircraft development and production costs are accounted for at Bombardier Aerospace. The change, from the programme accounting method used by most aircraft manufacturers to average cost accounting, has resulted in a profit in 2001-2. Special items totalling C$1.31 billion - including a C$588 million write-down of used aircraft, sublease revenues and production inventory - plunged the Aerospace segment to a C$1.34 billion pre-tax loss. The company delivered 191 CRJ regional jets, up from 165 in 2001-2, but only 77 business jets, down from 162 a year earlier. Regional turboprop deliveries fell from 41 to 29. One Bombardier 415 amphibious aircraft was deliv ered in 2002-3. Deliveries in 2003-4 pre-tax write-down of C$2.2 billion for 2002-3 and previous years. The write-down includes revised programme cost estimates of C$628 million, mainly due to reduced programme quantities of Dash 8 Q Series regional turbo- props as well as Global Express and Learjet 45 business jets. Aerospace revenues dropped 8% year-on-year to C$11.3 billion, on fewer business jet deliveries. Segment earnings before tax and special items fell to a C$32 million loss from a restated C$722 million BUSINESS Canadian companies suffer due to country's war stance US companies are blacklisting Canada's aerospace industry because of Ottawa's failure to back the Iraq war, the Aerospace Industries Association of Canada (AIAC) is warning. "Some of our members have been notified that contracts will be cancelled or delayed," says AIAC president Peter Smith. Smith says at least 12 members, which he will not name because of the impact on their share prices, have told him they have lost business from US customers. About C$17 billion ($11.5 billion) of Canada's C$22 billion aero space sales last year came from the USA. Bombardier's chief executive Paul Tellier says he is "deeply concerned about the deterioration of US-Canadian relations". The company is vying with Embraer for a regional jet order from US Airways. General Dynamics Canada says the way Canada's reputation is being negatively portrayed in the US media is worrying. 'The industry's concern is somewhat justified," says presi dent John Watts. Derek Burney, president and chief executive of CAE, says he would have preferred Canada to be among "the coalition of the willing" with the USA, UK and Australia. "We quietly accept US security without being prepared to pay much of a price ourselves," he says. Smith says US citizens have contacted AIAC members to say they are app ealing to members of Congress to boycott Canadian goods and services. In a letter to prime minister Jean Chretien, Smith says Canada's failure "to provide even a modicum of moral support to our closest ally.. .and the unpro fessional and inflammatory anti-American rhetoric uttered publicly by members of your government have caused significant damage to relations". are forecast to be flat, but there is some risk of CRJ cancellations or deferrals as a result of the airline industry turmoil, says Tellier. Year-end backlog at Aerospace fell C$5 billion year-on-year to C$18.7 billion as regional aircraft orders dried up. The company booked 37 net CRJ orders and one net Q Series last year and has firm orders for 380 jets and 15 turbo- props, plus commitments for another 1,240 regional aircraft. Under Tellier's drive for increased transparency in financial reporting, Bombardier has revealed for the first time its contingent lia bilities. The company has a C$2.18 billion exposure on regional air craft, made up of support for lessors and residual-value guaran tees, secured by aircraft currently valued at C$2.16 billion. Bombardier is also committed to C$5.2 billion in new regional air craft financing over the next three years, having arranged C$5.5 bil lion in 2002-3. In addition, busi ness jet customers hold trade-in options worth C$3.6 billion while share owners in Bombardier's Flexjet fractional programme hold sell-back and trade-in options val ued at over C$1.1 billion. As part of the restructuring of Bombardier Capital, interim finan cing for regional customers will be limited to 60 aircraft and a maxi mum of US$1 billion, says Tellier. There will be no new trade-ins or interim financing for business air craft. The sale of Capital's business aircraft loan portfolio is "well under way", he says. AIR TRANSPORT Northwest schemes to save on future painting costs Northwest Airlines claims it will save up to 20% of future aircraft painting costs by changing to a simpler livery, unveiled last week. The airline says that the simpler design, which replaces a 14-year-old scheme, uses fewer colours and more durable paints, will mean that repaints will only be needed every six years - a year more than cur rently - and the process of repainting its entire feet will be 5% cheaper. By the end of the year, Northwest expects to have 77 aircraft in the new scheme, and the old livery should be eliminated by 2008. 8 8-14 APRIL 2003 FLIGHT INTERNATIONAL www.fliqhtinternational.com
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