With the announcement on Thursday by Bombardier Inc that problematic rail contracts in Europe will mean 2019 profits will be lower than expected, and because it may also have to write down the value of the joint venture with Airbus for the former C Series commercial narrow-body jet, the company’s share price fell by up to 38.6% at one point as a consequence.
The company has been hit hard by a US$350 million charge over three European rail projects it is struggling with, while it also feels that the joint venture with Airbus over the renamed A220 will need further investment and may therefore be subject to a writedown during the fourth quarter’s results, which are due to be published next month. Bombardier now expects 2019 adjusted earnings before interest and taxes (EBIT) to be in the region of US$400 million as opposed to a previously estimated range of between US$700 million and US$800 million. Free cash flow, a metric closely watched by investors, is expected to be negative US$1.2 billion in 2019, compared with the previously forecast negative US$500 million. The yield on Bombardier’s U.S. dollar bond due March 15, 2025 surged more than 150 basis points to 8.4%.
Based on Refinitiv data, Bombardier has US$9.7 billion in outstanding bonds. According to Reuters News Agency, Bombardier also said it is “reassessing” its minority stake in the A220 jet program, which will require additional cash investment to ramp up production. Bombardier could agree to sell its 33.58% stake in the A220 program (Airbus holds a majority 50.6% stake and the Canadian province of Quebec holds the remaining 16.36%) as this would be less of a financial strain for Airbus to invest further to increase production, Bombardier’s current cash flow not being helped by the fact that delivery of four of its Global 7500 jets, at an individual list price of US$73 million, has been delayed to the first quarter of this year.
