Bombardier CEO Cash Hunt Means IPO-or-Sale Choice on Trains

  • After reducing risk, Bellemare focuses on improving operations
  • Job cuts are possible, and Q400 turboprop targeted for savings

Bolstered by as much as $1.3 billion of Quebec government aid, Bombardier Inc.’s Alain Bellemare is turning to a to-do list that includes finding more money.

Job cuts are a possibility, and the Q400 turboprop program is one area to trim expenses, according to Bellemare, who was hired as chief executive officer in February after the first annual loss in almost a decade. The company also is poised to choose between selling a stake in its rail unit or the once-preferred option of an initial public offering. 

“Should there be softness in the market that we don’t see today, at least we will have a cushion to make sure that we don’t put ourselves into a liquidity-concern position again,” Bellemare said Thursday in a meeting with reporters at Bombardier’s Montreal headquarters.

Quebec’s bailout for Bombardier -- a $1 billion lifeline for the troubled CSeries jetliner, plus a possible equity stake -- didn’t end the manufacturer’s challenges. Bellemare is scrounging for savings and fresh financing after the CSeries drained cash amid cost overruns and missed deadlines for customers to get their planes.

Cancellation, Loss

Bellemare, 54, who left United Technologies Corp. last year, had to preside Thursday over a litany of bad Bombardier news: cancellation of the mothballed Learjet 85 program, a $3.2 billion charge for the CSeries and a third-quarter loss of $4.9 billion that exceeded the company’s market value.

In the interview, he framed his next moves: Improving the operational performance that helped create the crisis in the first place.

“The focus so far has been on de-risking. That was the first phase: de-risking programs and de-risking liquidity,” Bellemare said. “Now we are going to start focusing on operations -- operational efficiency, operational performance. That’s the next step.”

Shares Slump

Investors reacted skeptically to the Quebec rescue. Bombardier’s widely traded Class B shares fell 15 percent, the most since August, to $C1.37 at the close in Toronto. That dragged the stock to a 68 percent drop this year and valued the company at C$3.09 billion. In 2002, it was Canada’s most-valuable industrial company, at $C14.8 billion.

Signing up Quebec as a backer will help Bombardier by giving potential customers confidence that the company will stick with the CSeries for the long term, Bellemare said. Offered in two versions seating as many as 160 people, the CSeries is due to enter service in 2016, more than two years late.

“This is to give us room to maneuver,” he said. “To regain traction in the marketplace, we will need to be aggressive. We feel we now have the ability to do that, and we are confident that we will be able to do that.”

At United Technologies, Bellemare helped lead a company that sold parts to Bombardier, Boeing Co. and Airbus Group SE and faced pressure to squeeze out supply-chain spending. As CEO of a planemaker, he’s on the other side of that relationship.

‘More Value’

“If you want to have a business that is successful, you have to take cost down,” Bellemare said. “There’s no magic to this. Everybody wants more value.”

Bellemare didn’t give any specifics on a possible reduction in the workforce, which numbered 74,000 at the end of 2014. One-third of that total, or about 24,700 people, were in Canada, according to company figures.

Job cuts are “not job cuts for the sake of cutting jobs,” Bellemare said. “We
are going to look at what does make sense to make the business strong.”

Other steps may include transferring some of the Q400’s production outside of Canada, Bellemare said. Talks have begun with unions in Ontario to help find savings, he said.
At $31.3 million, the Q400’s list price “is too high,” Bellemare said. “It’s a great aircraft, but it’s too costly.”

Bombardier makes trains and rail equipment along with planes, and the divestiture of part of that business had been on the table for months as Bellemare searched for additional funding. He wouldn’t identify any prospective suitors for the rail division, or signal whether the company was still leaning toward an IPO, as it had once emphasized.

“We like the private placement option. The IPO I’ve always said was an option that will help us crystallize the value,” Bellemare said. “You have pros and cons in each. We will see what we can do on the private placement, and then in the next few weeks we will decide.”

He took note Thursday that the Quebec bailout wasn’t the first time Bombardier had sought fresh funding, after selling debt and equity earlier this year. 

“When I joined, we raised $3 billion of liquidity,” Bellemare said, “and we thought it was plenty.”

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