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Bombardier announces $278 million charge on business jets

Bombardier announced it will record a a $278 million pre-tax special charge for its Business Aircraft company when it releases fourth quarter financial results next month, the third write-down attributed to that division in a year.

The special charges come after the company restructured the division’s sales team and reached agreements with customers that led to the cancellation of 24 firm orders and 30 options for business jets in the company’s backlog.

David Coleal, president of Bombardier Business aircraft, said the company is changing its sales team to focus on direct relationships with customers. Third-party sales representatives and distributors are being terminated.

“This, coupled with our robust transformation plan, will increase our long-term profitability,” Coleal says.

Bombardier has weathered several waves of bad news in the business aircraft division, starting last January when the company announced a $1.2 billion write-down related to the “pause” of the Learjet 85 development programme.

In July, Bombardier announced a two-year delay for the Global 7000 business jet due to a decision to redesign the wing. At the same time, Bombardier announced that business jet output would decline from around 80 jets per month in 2015 to about 50 aircraft monthly in 2016.

Bombardier finally terminated the Learjet 85 programme in October, announcing a further $1.4 billion special charge.

Bombardier has not disclosed the aircraft types involved in the new agreements that resulted in the cancellation of 24 firm orders in the last quarter. The jets had a list value of $1.75 billion.

Coleal says that the cancellations should have a positive effect. As the production rate has declined, Bombardier’s costs may have overwhelmed the value of the sales contracts. Those production slots can now be filled with order agreements with “improved margins”, Bombardier says.

“Restructuring these commercial agreements will strengthen our business and solidify our long-term profitability,” Coleal says.

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