(Bloomberg) – Bombardier Inc. was the one that fell most on the record after warning about disappointing fourth-quarter sales and revealing that it could leave a joint venture with Airbus SE that manufactures the A220 aircraft.
An acceleration in the production of A220 will require an additional cash investment, which will delay the breakeven point and generate lower returns throughout the life of the project, Bombardier said in a statement Thursday. The value of the A220 joint venture is likely to decrease and the amount of any amortization will be disclosed with the full results of 2019 next month, the company said.
The possible end of Bombardier’s participation in the A220 program is combined with continuing problems in the company’s rail business to undermine a name that was once a big name in manufacturing. Moving away from the A220 would close the book about Bombardier’s participation in an aircraft program in which the company invested more than $ 6 billion.
Profitability and free cash flow are “significantly lower than previously expected,” which represents a major setback for the company, said Fadi Chamoun, an analyst at the Bank of Montreal, in a note to customers. Bombardier’s reassessment of its participation in the A220 program is likely to result in amortization, he said.
Bombardier fell 36% to C $ 1.14 at 10:09 a.m. in Toronto after falling up to 39% for the largest intraday drop recorded. That dragged the shares to the lowest level in almost four years.
Yields of $ 1.5 billion in Bombardier notes maturing in 2025 increased to 7.7%, the highest since November 1. Bond yields move inversely to prices.
Bombardier said fourth-quarter sales would be $ 4.2 billion, below the lowest analyst estimate in a Bloomberg survey.
The results were partly dragged by new challenges in the company’s railway division. Bombardier said he would take an accounting charge of $ 350 million due to problems in London, Switzerland and Germany.
The timing of milestone payments and the slippage of four commercial aircraft deliveries in the first quarter of 2020 also cut the results at the end of last year, Bombardier said.
Liquidity remains strong, with an available year-end cash of approximately $ 2.6 billion, Bombardier said. But the company is considering alternatives to accelerate its deleveraging and strengthen its balance sheet.
“The final step in our change is to disarm and resolve our capital structure,” executive director Alain Bellemare said in the statement. “We are looking for alternatives that allow us to accelerate the payment of our debt.”
The company plans to report full earnings on February 13.
Commercial Jet Withdrawal
The possible end of Bombardier’s participation in the A220 would culminate a withdrawal that began in 2018 when the company ceded control of the platform to Airbus without cash in advance. The plane was praised for its low fuel consumption engines, compound wings and larger than usual windows. But the program was delayed more than two years and exceeded $ 2 billion in the budget, and Bombardier had trouble finding buyers in an industry dominated by Airbus and Boeing Co.
Airbus said it would continue to fund the A220 program “on the way to the breakeven point.” The European aerospace giant has a 50.01% stake in the regional aircraft, with Bombardier retaining 31% and the state-backed Quebec Investissement, with 19%.
The plane added 63 orders in 2019, with 105 currently in service and a portfolio of orders close to 500 planes. Airbus will begin producing the A220 in a second assembly line this year at its factory in Mobile, Alabama.
Bombardier agreed last year to sell a plant in Belfast, Northern Ireland, which manufactures wings for the A220. The buyer, Spirit AeroSystems Holdings Inc., seeks to increase its exposure to Airbus programs after suffering as a supplier of the Boeing 737 Max.
The Canadian company also agreed to sell its regional jet program to Mitsubishi Heavy Industries Ltd.
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