Bombardier pauses Learjet 85 program and revises 2014 guidance

Bombardier announced the pause of its Learjet 85 business aircraft program. The pause is due to weak demand for the Learjet 85 aircraft and follows a downward revision of Bombardier’s business aircraft market forecast. This reflects the continued weakness of the Light aircraft category since the economic downturn. As a result, the Company will record a pre-tax special charge in the fourth quarter of 2014 of approximately US$1.4bn mainly related to the impairment of the Learjet 85 development costs. Additionally, Bombardier will reduce its workforce by approximately 1,000 employees at its sites in Querétaro, Mexico, and Wichita, United States. A severance provision of approximately US$25 million will be recorded as a special item during the first quarter of 2015. Bombardier’s Wichita and Querétaro sites remain critical facilities in key markets. Wichita is a multifaceted facility and is the location of final assembly activities for the Learjet 70 and Learjet 75 aircraft, the Bombardier Flight Test Center as well as a Service Center. In addition to contributing to many of Bombardier’s aircraft programs, the Querétaro site recently completed its Global 7000/8000 aft fuselage manufacturing building. Furthermore, following a review of preliminary results compiled by Bombardier for the fiscal year ended December 31st, 2014, it has become clear that certain financial guidance previously provided will not be met. Based on these preliminary results, Bombardier is updating its guidance for 2014. Earnings before financing expenses, financing income and income taxes (EBIT) before special items at Aerospace (BA) is expected to be approximately 4% compared with a previous guidance of 5%. The variation is mainly due to increased provisions for credit and residual value guarantees, pricing pressure on new aircraft sold, as well as a decrease in fair value of used aircraft. EBIT before special items at Transportation (BT) is expected to be approximately 5% compared to a previous guidance of 6%. This variation is mainly due to revised escalation assumptions for some contracts which impacted estimated future revenues. Cash flow from operating activities at Aerospace is expected to be approximately US$800m while net additions to property, plant and equipment (PP&E) and intangible assets are expected to be approximately US$1.8bn, compared with a previous guidance for cash flow from operating activities between US$1.2bn and US$1.6bn and net additions to PP&E and intangible assets between US$1.6bn and US$1.9bn.