Feb. 12, 2015: Struggling under the strain of two years of delays for the CSeries, poor sales of the Q400 and CRJ and a disastrous LearJet program, the world’s commercial airplane maker shuffled its very top leadership and announced it would seek more than $2bn in new debt and equity as the fourth quarter negative cash flow exceeded $1bn.
Bombardier said in its press release:
Bombardier is announcing today a plan to position the Corporation with a flexible and strong financial profile. Pursuant to this plan, the Corporation intends to undertake the following:
- Issuance of equity for approximately $600 million: the Corporation intends to access the capital markets for approximately $600 million in new equity, depending on market conditions.
- New long-term debt capital of up to $1.5 billion: the Corporation intends to access the capital markets for up to $1.5 billion in new debt capital, depending on market conditions.
- To complement this financing plan, the Corporation will explore other initiatives such as certain business activities’ potential participation in industry consolidation in order to reduce debt.
Here is a synopsis of the earnings call, creating during the live streaming. All quotations are paraphrased.
Pierre Beaudoin, president and CEO (PB)
Pierre Alary – Senior Vice President and Chief Financial Officer PA)
Alain Bellemare, president and CEO effective Feb. 13 (AB)
- There is no doubt 2014 was not a good year. I’ve taken steps to improve results and look for more stability and better results over next two-three years.
- Created new business units in Aerospace to increase value and profits.
- I am convinced Alain will take the company to the next level.
- Undertaking new financing to put company on solid footing.
- May participate in industry consolidation.
- Guidance for commercial aerospace: expected negative EBIT of negative $200m. Liquidity: expected even cash flow, investment of $900m and delivery of 80 aircraft.
- In order to position BBD with a strong and flexible financial profile, we are launching new financing plan.
- PB: We’re right on target to certify CSeries in 2H2015.
- PB: won’t speculate on consolidation, but in Transportation (trains) we need to ask ourselves is where do we best position ourselves, for example (in face of Chinese competition).
- PA: We’re doing a ramp up in CSeries and we’ve already started producing in 2014. First units will have a lower unit price and higher production costs.
- PB: the family will participate in future equity raises, and won’t give up its voting shares (which control the company).
- PB: From my perspective we are 243 orders of 300 target for CSeries, so I feel we are in a good position. Airlines are watching the test program. It’s more about hardware right now, so-to-speak. (Beaudoin did not answer the question whether customers were concerned about BBD’s balance sheet and if there was a confidence issue holding back sales.)
- The new fund raise might be used to make acquisitions in, for example, Transportation, Beaudoin hinted without directly answering a question on this point.
- AB: I have looked at the 2015 plan very briefly and will look at it in more detail in advance of investors’ day in March. This will be my primary focus.
- PB: There is good opportunity in turboprop and regional jet. Lower fuel prices allow airlines to buy airplanes. The Chinese market will be a very large market for the turboprop. If that supports an assembly line there we would look at that.
- PB: “We have not announced” the first operator of the CSeries. (As of two weeks ago, we understand no customer has agreed to be the first operator-Editor.)
UBS, the investment bank, was quick with a note and this reaction:
Still see tough road ahead
Q4 adjusted EPS at $0.04 and FCF at $590M are about in line with pre-announcement and our model while 2015 guidance is also about in line. Dividend suspension and equity raise come sooner as we had assumed BBD could get in one more stand-alone debt raise in the $2B / 7% range. We see appointment of Alain Bellmare as a net positive, although we continue to see a tough road ahead given significant balance sheet leverage, expectation of further FCF outflows, and questionable demand for CSeries.
Aerospace and Transportation FCF guidance about in line
Transportation FCF (on unlevered, pretax basis) seen above 2014 level ($122M), although below EBIT, implying something in the $200-500M range, while Aerospace FCF seen at ~$800M outflow (+/-$200M) including $900M outflow at Commercial and $100M outflow at Aerostructures, partially offset by anticipated $200M positive FCF at Bizjet (+/-$200M). Adjusting for capitalized interest, we estimate that Aerospace guidance incorporates $600-900M in CFO (all at bizjet) more than offset by ~$1.6B in capex/capdev spend.