Bombardier Paring Debt Ratio to Regain Investment Rating

Bombardier Inc., the plane and train manufacturer with $8.13 billion in adjusted borrowings, is working to cut one of its debt ratios almost in half amid a quest to regain its investment-grade rating.

The target for the ratio of adjusted debt to adjusted earnings is less than 2.5 times, down from 4.6 times as of Oct. 31, Chief Financial Officer Pierre Alary said today at an investor presentation in New York. He didn’t say when the company wants to reach that goal.

Bombardier can reduce that ratio by boosting profit or reducing debt such as pension liabilities, “and we are very focused on both of these aspects,” Alary said.

Chief Executive Officer Pierre Beaudoin also laid out a timetable for increasing annual revenue to as much as $34 billion within “five to 10 years” from an estimated $18 billion now as trains and planes in development start to reach buyers. New-product spending will be $1 billion this year, he said in an interview at Bloomberg headquarters in New York.

Adjusted debt of $8.13 billion as of Oct. 31 compared with adjusted earnings of $1.76 billion, according to a slide presentation on the Montreal-based company’s website. A ratio of debt to earnings before interest, taxes, depreciation and amortization of less than 2.5 times is “consistent with an investment-grade profile,” Alary said.

Bombardier’s debt is rated BB+ by Standard & Poor’s and Ba2 by Moody’s Investors Service. The S&P rating is one level below investment grade, while Moody’s is two levels lower. Both ratings companies cut Bombardier to junk in 2004.

‘Record Backlog’

Regaining an investment-grade rating “in itself is a target,” Alary said. “Is it an impediment to doing business? No. We are signing orders, we have a record backlog. The facts clearly indicate this is not an issue.”

Net pension liabilities have climbed this year to $2.87 billion on Oct. 31 from $1.95 billion at the end of January. Alary said pension contributions should be stable in 2012.

The company may pour $376 million into its pension plan globally this year, according to the slide presentation.

Bombardier fell 4.6 percent to C$3.78 at the Toronto close. The shares have plunged 25 percent this year.

Listing the stock in the U.S. “could make sense,” Beaudoin said at the investor presentation. “I’m not saying we are doing it, but it’s something a company our size should consider.”

CSeries Revenue

The CSeries family of narrow-body jetliners, which is scheduled to enter service in 2013, would contribute $5 billion to $8 billion annually toward Bombardier’s revenue goal, according to the company’s presentation. Revenue in the first nine months of the fiscal year was $14 billion.

Bombardier’s aerospace chief, Guy Hachey, said the CSeries should still meet its first-delivery target even after the planemaker used much of the spare time built into the aircraft’s development schedule.

“Do we still believe we can make it? Yes,” Hachey told investors and analysts.

The CSeries has a total of 300 firm orders, options and letters of intent, and the engine and facilities are “right on track,” Hachey said. Some suppliers are behind and others are on time, he said.

The jet will compete against the smallest variants of single-aisle 737s from Boeing Co. and A320s from Airbus SAS.

To contact the reporter for this story: Frederic Tomesco in New York at tomesco@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.