- Decline raises possibility of removal from stock gauge
- Sentiment `could change in a hurry' with order, analyst says
Bombardier Inc.’s shares briefly dipped below C$1 to their lowest level in almost 25 years as investors lose patience with the iconic Canadian aircraft maker over delays and cost overruns on its new series of jets.
Its 1 percent decline Wednesday added to the 25 percent drop the shares sustained this year through Tuesday. The rout raises the prospect that the aircraft maker will be thrown out of the main Canadian stock gauge -- a development that would bring additional pressure by forcing index funds to sell their holdings.
Investors have abandoned the shares as the 73-year-old company struggles with the development of the C Series, a jet with as many as 160 seats that is two years late and more than $2 billion over budget. Originally a snowmobile maker, Montreal-based Bombardier grew into a train and aircraft maker that is credited with inventing the regional jet in the 1980s.
“There is a huge lack of confidence now,” said David Tyerman, an analyst at Cannacord Genuity. He cited United Continental Holdings Inc.’s decision last week to place an order with Boeing Co., rather than Bombardier, as well the removal of some jet orders from the Canadian company’s backlog. “If they pick up a C Series order, all of this could change in a hurry. This is all very much sentiment-driven.”
The company’s widely traded Class B stock dropped to $1 at the close in Toronto, its lowest level since February 1991, after briefly trading as low as 98 Canadian cents late in the session. Bombardier’s 68 percent tumble last year made it the sixth-worst performer this year among members of Canada’s benchmark Standard & Poor’s/TSX Composite Index.
A stock must have an average price of at least C$1 for the previous three months to remain in the S&P/TSX index after each quarterly review, according to Tony North, senior manager of equity markets for S&P Dow Jones Indices.
Bombardier’s stock may get a temporary boost if the company wins support from the Canadian federal government, which is considering an aid package for the aircraft maker, said James Telfser, a money manager at Aventine Management Group Inc. Still, any rally would just give investors an opportunity to sell, said Telfser, who helps manage C$100 million ($70 million) for the Toronto-based hedge fund. Aventine doesn’t own Bombardier shares.
“It’s been a disaster of a story,” Telfser said in an interview at Bloomberg’s Toronto office.
Bombardier now has a market value of C$2.3 billion. That’s equivalent to almost 23 units of the CS300 -- the company’s largest aircraft model, which carries a list price of $72 million.
The family of founder Joseph-Armand Bombardier controls the company through their Class A shares, which carry 10 votes each.
The planemaker now estimates that the C Series program will cost $5.4 billion. While working on the C Series, Bombardier has seen sales of its CRJ family of regional jets lag behind those of Embraer SA, which are being fitted with new engines.