MONTREAL – When he officially succeeds Alain Bellemare as CEO of Bombardier Inc. on Monday, Eric Martel will be faced with serious questions about the future of a Quebec institution struggling with falling prices, downgrades credit and a financial situation that some consider “unsustainable”.
The aircraft and train manufacturer’s stock fell to its lowest level in more than 25 years on Friday, closing at 40.5 cents.
The inventory drop came after Fitch Ratings downgraded CCC’s credit rating last week to CCC + several days after the manufacturer suspended Canadian production due to the COVID-19 pandemic.
Standard & Poor’s also lowered its rating for the company to CCC + from B-, thereby strengthening its undesirable status.
Meanwhile, 12,400 Bombardier employees are still on leave without pay.
S&P said “Bombardier’s financial commitments appear unsustainable over the long term,” warning that the company may have to restructure its debt within 12 months.
The Montreal-based company is $ 9.3 billion in debt despite several asset sales over the past five years. It will be reduced to a single source of income – business jets – after announcing the sale of its rail division to the French train giant Alstom SA in February, just as demand for private aircraft declines amid the economic slowdown more large triggered by the epidemic.
The sale further reduced a business that a year ago had three major divisions – commercial aircraft, trains and business aircraft.
“It is not very beautiful. Simply not beautiful, “said Richard Aboulafia, an aviation analyst with Teal Group in the Washington, D.C. area
Global oil price collapse could impact Bombardier, he said, as major oil companies and states cut spending like private large aircraft – Bombardier Global 7500 lists 73 million US dollars.
Liquidity risks remain a “major concern,” said Seth Seifman of J.P. Morgan.
While the Global 7500 ultra long range is sold out until 2022, Seifman has lowered its business aircraft delivery forecast by more than 100 for the next two years – to 91 aircraft from 162 for 2020 and to 129 aircraft against 164 for 2021.
“Our downgrades are the result of COVID-19 supply constraints, Bombardier closing its manufacturing operations in Canada until at least April 20, as well as expectations of lower demand for business aircraft , including postponements and cancellations, due to the economic fallout from the virus, “said Seifman in a research note.
The disruption of the aeronautical supply chain poses another problem, with aircraft manufacturers relying on hundreds of suppliers who are now at risk as giants like Boeing Co. and Airbus SE stop production.
Bombardier spokesperson Olivier Marcil has challenged the rating agency’s demotions.
“We do not agree with the S&P and Fitch analyzes. In particular, S&P recognizes that its analysis is based on a forecast that is “very uncertain at the moment”, noted Marcil. “The comments on the debt measures we may eventually have to take are just speculation. “
Marcil highlighted the agencies’ recognition of Bombardier’s solid short-term liquidity. “In addition, the reports recognize Bombardier’s advantageous positioning in the business jet sector and our well-filled order book,” he said in an email.
On the horizon, debt maturities of US $ 1.48 billion and US $ 1.7 billion are expected in 2021 and 2022 respectively. About 60% of the total debt of US $ 9.32 billion is due in five years.
US $ 8.2 billion agreement with Alstom and other recent transactions will leave Bombardier with net proceeds of between US $ 4.2 billion and US $ 4.5 billion after deducting Caisse equity deposit, as well as adjustments for debts and other liabilities, said Bombardier in February. .
The deal is expected to close in the first half of 2021, if it can clear regulatory hurdles from the European Union.
Bombardier Strengthened Cash Reserves With Sale Of Remaining Interest In A220 Commercial Airliner Program To Airbus In February, Compensating For $ 531 Million To Date, With Additional $ 60 Million Expected ” a bonus structure as part of the agreement.
And it continues to work on closing the sale of US $ 550 million from its CRJ jet aircraft program to Mitsubishi and the sale of US $ 500 million from its aerostructure operations in Belfast and Morocco to Spirit AeroSystems, which were originally planned for the first semester. of 2020.
Bombardier’s price fell to about half of its 25-year low in February 2016, raising questions about whether it will remain listed on the Toronto Stock Exchange.
TSX rules state that it can deregister a company if “it appears that the public distribution, price or trading activity of the securities have been reduced to the point where trading in the securities on the TSX is unwarranted” .
Asked about the status of Bombardier, spokeswoman Catherine Kee said in an email that “radiation is the result of a long-term process and careful scrutiny; it is not determined quickly.”
This report from The Canadian Press was first published on April 3, 2020.
– with files from Julien Arsenault
Companies in this story: (TSX: BBD.B)
Christopher Reynolds, The Canadian Press