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Bombardier to determine CRJ production cut soon

Bombardier is taking a hard look at its regional jet production rate to determine what level of cut to make this fall - and whether it needs to initiate further layoffs - as new CRJ orders have proven elusive.

The Canadian airframer has also revealed that its flight test programme for the new CRJ1000 NextGen aircraft is slightly behind schedule, and that initial deliveries will likely be delayed.

In April Bombardier announced plans to reduce CRJ production in the latter part of the year to adjust for a slowing of new orders and deferral requests. At that time, the manufacturer assumed that new orders would be forthcoming.

But while Bombardier is currently working on a handful of potential new CRJ contracts, the company has seen its CRJ backlog diminish.

Last month the manufacturer terminated the 15-strong CRJ1000 order of grounded Italian low-fares carrier MyAir. Bombardier also faces uncertainty over a CRJ900 order earmarked for Iraq, and has warned that its business could be severely impacted in the short-term if it is unable to deliver a balance of nine CRJ900s to the country.

Kuwait Airways is seeking to confiscate the regional jets as compensation from Iraqi Airways and the Iraqi Government for destruction of its fleet in the 1990-91 Gulf conflict.

In 2005, the English courts ordered Iraqi Airways to pay Kuwait Airways more than $1 billion Canadian in principal and interest. Kuwait Airways then applied to add Iraq as a second defendant, but only for the costs of the actions, which amounted to about $84 million.

Kuwait Airways' efforts to secure these funds recently gained momentum when the Supreme Court of Canada agreed to hear an appeal to have the ruling the carrier won in the UK recognised in Canada.

If the case is not resolved in favour of Iraqi Airways and Bombardier, and if the airframer does not succeed in securing new CRJ orders in the near-term, "it compounds the issue" and will be incorporated into the firm's decision matrix for CRJ production rates, says Hachey.

"We are currently in FY2009-2010 and it ends on 31 January 2010, so, yes, the CRJ reduction will happen by this date and will most profoundly impact production in the next fiscal year (2010-2011) that begins 1 February 2010," says Bombardier.

Just how steep a reduction will be made is unclear. The four or five CRJ campaigns that are currently active could affect the production rate at the plant, notes Hachey.

A total workforce reduction of about 4,400 employees is already underway at Bombardier. If the firm needs to "go lower than we expected" with CRJ production then there would be additional layoffs, says Hachey, who hopes to have more clarity on the situation by the end of October.

Bombardier's largest CRJ, the new 100-seat CRJ1000, has fallen slightly behind schedule due to a software glitch experienced in July. While the glitch has since been rectified, Bombardier now believes it will be able to deliver the first CRJ1000 in its fiscal first quarter, which ends on 30 April 2010. The airframer previously intended to deliver the first CRJ1000 in January.

Meanwhile, Bombardier feels comfortable with the level of production it has established for its business aircraft, a sector that is starting to see "some signs of stabilization", it says.

Bombardier Aerospace, which produces both commercial and business aircraft, recorded fiscal second quarter revenues of $2.4 billion compared to $2.5 billion in the year-earlier period.

Earnings before financing income, financing expense and income taxes (EBIT) reached $154 million translating into an EBIT margin of 6.4%, down substantially year-over-year from EBIT of $243 million and a 9.7% margin.

As of 31 July Bombardier Aerospace's backlog totalled $19.6 billion versus $23.5 billion at 31 January.

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