Canadian manufacturer to raise equity and sell assets as $417m loss prompts change in focus towards consolidation

Bombardier has unveiled a sweeping restructuring designed to strengthen its balance sheet and restore investor confidence. Charges related to the restructuring plunged the Canadian manufacturer 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 company from high growth to consolidation, 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, including 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 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 turboprops 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 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 delivered in 2002-3. Deliveries in 2003-4 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 turboprops, 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 liabilities. The company has a C$2.18 billion exposure on regional aircraft, made up of support for lessors and residual-value guarantees, secured by aircraft currently valued at C$2.16 billion. Bombardier is also committed to C$5.2 billion in new regional aircraft financing over the next three years, having arranged C$5.5 billion in 2002-3. In addition, business 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 valued at over C$1.1 billion.

As part of the restructuring of Bombardier Capital, interim financing for regional customers will be limited to 60 aircraft and a maximum of US$1 billion, says Tellier. There will be no new trade-ins or interim financing for business aircraft. The sale of Capital's business aircraft loan portfolio is "well under way", he says.

Source: Flight International