Canadian manufacturer revises net profit projections down and slows production as market slump fails to bottom out

Bombardier has slashed its projected business jet deliveries for this financial year by 40, down to 100 aircraft from 162 last year, amid signs the industry-wide slump in sales has yet to bottom out.

The Canadian company is, however, still forecasting deliveries of 190 regional jets and 36 Dash 8 Q-series regional turboprops for its financial year ending 31 January. Bombardier has cut its net earnings forecast for the full year to just under C$1 billion ($642 million) because of the decline in the business aircraft market and the impact of the US Airways Chapter 11 bankruptcy filing. Overall revenues rose 16% to C$5.7 billion in the second quarter, but net income fell 65% to C$101 million after pre-tax charges in its aerospace sector totalling C$211 million.

The charges relate to the write-down value of used business aircraft and the expected reduction in residual values and sublease revenues on 36 Dash 8s operated by US Airways Express, and another 50 aircraft for which the company has financial obligations. Also included is a C$40 million charge to cover the settlement of disputes with two customers over the delivery of special-mission aircraft.

"The business aircraft market has not bottomed out, as we thought it had," says chief executive Robert Brown. The initial impact of the downturn was on light jets, but Bombardier has been forced to slow production of the Challenger, an aircraft "which makes a good contribution to our results", he says.

Bombardier Aerospace revenues were flat at C$2.68 billion, but the charges led to a pre-tax loss of C$25 million compared with a profit of C$329 million for the same period last year. The company delivered 53 regional aircraft, up from 47 a year ago, but business aircraft deliveries fell to 21 units from 43. For the first six months, aircraft deliveries totalled 139 units, down from 173 year-on-year.

In the first half of August, Bombardier was hit by the surprise cancellation of orders for four Challengers and four Learjet 45s. Orders for 29 CRJ200 regional jets and one CRJ700 were booked in the second quarter, but there were four cancellations by Palestinian Airlines and Argentina's Southern Winds. In the first six months, the company received firm orders for 30 CRJs and six Dash 8s. The aerospace backlog stood at C$22.5 billion on 31 July, down from C$25.9 billion 12 months earlier.

Bombardier Capital saw business aircraft financing increase to over $2.5 billion from $2.2 billion at the end of the previous financial year. Commercial aircraft interim financing increased from C$393 million to C$733 million. Brown says the company's exposure to regional turboprop financial obligations is "quite small, less than C$20 million". The company has reduced the new turboprop production rate to 12 Q300s and 18 Q400s a year.

Source: Flight International