Fri. Apr 3rd, 2020

The future of Bombardier, in the air with the sale of its commercial aircraft

The decision of the Canadian company Bombardier to abandon the manufacture of commercial airplanes after investing billions of dollars for years to become the third world manufacturer, caused stupor in the experts of the sector that they fear is the beginning of the end of the company.

Last Thursday, Bombardier, one of the largest manufacturers of railway equipment and airplanes in the world, announced that in 2019 it lost 1,607 million dollars after its revenues were reduced by 3% to stand at 15,757 million dollars, with losses before of interest and taxes (EBIT) of 498 million dollars.

In 2018, when Bombardier had net benefits of $ 318 million, earnings before interest and taxes were $ 1,001 million.

The worsening of the financial results was not a surprise. The company had already warned in January that its results were not going to be good and that it was looking to strengthen its finances but without explaining how.

With the publication of the 2019 results, Bombardier also revealed its strategy to get afloat: sell its commercial aircraft unit, in the past considered the company’s salvation chart, to Airbus and the Government of the Canadian province of Quebec to focus on the production units of railway equipment and business aircraft.

The operation actually means selling 31% of Bombardier’s stake in Airbus Canada Limited Partnership (ACLP) to Airbus and Quebec, a joint venture formed in 2018 by the Canadian manufacturer with the European company to save the costly C Series development program of Bombardier aircraft now called Airbus A220.

Once the sale materializes, Airbus will have 75% in ACLP and Quebec the remaining 25%. In return, Bombardier will receive 600 million dollars.

But more importantly, the Canadian company will save 700 million dollars that it had to invest in ACLP and eliminate some 2,000 million dollars in financial liabilities and future commitments.

And it is that Bombardier’s problem is the lack of liquidity: the railway and aeronautical manufacturer has to face the payment of 9,300 million dollars in interest and the sources of money have been exhausted so he has to start selling his assets.

Marvin Ryder, associate professor in Marketing and Entrepreneurship at McMaster University in Canada, explained to Efe that the headaches for Bombardier began when he lent $ 9 billion to support his growth.

“The company could have succeeded if each of its parts had executed perfectly, but when operational cracks began to appear, the company was unable to generate enough cash flow to meet its debt obligations,” he said. Ryder

“Now that orders begin to arrive, it does not have enough working capital to produce the planes it is selling,” he added.

Much of that debt is the result of the 6,000 million dollars that Bombardier threw into the development of the C Series, a narrow-body aircraft with capacity to transport up to 160 passengers, and which in 2018 yielded Airbus for 1 dollar in exchange for 50 , 01% to try to save the program.

In 2015, Bombardier already received $ 1 billion from the Government of Quebec, the company employs almost 13,000 people in the province, and another $ 1.5 billion from a Quebec pension fund, to keep the C Series development alive.

It is not the first time that Bombardier emerges from a party considered central to the company. Bombardier was founded in 1942 by mechanic Joseph-Armand Bombardier as a snowmobile manufacturer, a vehicle invented by the company’s founder.

But in 2003, the company sold the unit that produced snowmobiles to a group of investors among which the Bombardier family is located.

Before Bombardier surprised with the announcement of his departure from the commercial aircraft business, experts considered that the company was actually trying to part with the railroad unit and that it was in advanced negotiations with France’s Alstom.

In fact, European media said last week that Bombardier would receive about 7,000 million euros from Alstom for its railway equipment unit.

In addition, other media said the American Textron was ready to buy the business aircraft unit for $ 5.4 billion.

But for Ryder, it’s not clear what Bombardier’s future is.

“If all sales materialize, there will be nothing left of Bombardier. Everything will be sold. For now, it seems that the train and commercial aircraft units have been sacrificed so that Bombardier can concentrate on business reactors,” Ryder said.

“But Bombardier has not clarified anything this week,” added McMaster University professor.

Julio César Rivas


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