Moody's Investor Service has downgraded Bombardier's credit rating, spurring the Montreal-based manufacturer to accuse Moody's of misreading the recent Bombardier-Airbus deal.
The credit rating company lowered its rating for Bombardier to B3 from B2, while also downgrading its outlook for the company from "stable" to "negative", Moody's says in a 24 October research paper.
"The downgrade reflects our expectation that Bombardier's leverage will remain high through 2019 and its ability to generate positive cash flow in that year has headwinds related to the potential delay of CSeries plane deliveries," Moody's analyst Jamie Koutsoukis says in the paper.
Bombardier fired back with a statement on 25 October.
"Bombardier strongly disagrees with Moody’s rating action. It does not accurately reflect the value of our partnership with Airbus and is completely disconnected with the market reaction, which has been overwhelmingly positive," Bombardier says.
Moody's cites uncertainty about Bombardier's CSeries and Global 7000 business jet programmes and increasing competition in both the aircraft and rail industries.
Despite those risks, the credit rater says the recent Bombardier-Airbus deal "could invigorate interest in, and improve the long term prospects for" the CSeries.
The Bombardier-Airbus agreement, announced 16 October, calls for Airbus to gain a 50.01% ownership stake, with no money at closing, of the company that operates the CSeries programme.
With Airbus on board, the companies will open a facility in Mobile, Alabama, to perform CSeries final assembly, allowing the aircraft to avoid potentially hefty US import duties, executives say.
The deal also gives Airbus the option to purchase all of Bombardier's CSeries ownership seven-and-a-half years after the deal closes, which the companies expect will happen in the second half of 2018.
"The structure of the partnership reflects the low value of the CSeries currently and calls into question Bombardier's future in the commercial aircraft space," Moody's says.
Moody's questions Bombardier's ability to break even in 2018 or 2019, and its ability to refinance debt that begins maturing in 2019.
But Bombardier notes that the Airbus deal led aviation analysts to boost by 40% to 50% their CSeries forecast deliveries, it says.
Bombardier also says investors reacted favourably to the news, and says other research companies, including Fitch Ratings, have cited positive aspects in the deal.
Fitch's 17 October note says the Airbus deal "could improve" Bombardier's credit rating.
"The Airbus partnership offers production cost savings and access to Airbus's marketing and support networks, which could improve the programme's long-term value," Fitch says.
Bombardier's chief executive Alain Bellemare says the Airbus agreement will give CSeries sales, marketing and procurement support – the commercial heft needed to spur more orders.