- Drop of 34% this year sparks risk of removal from stock gauge
- Investors lose confidence over struggles with C Series jet
Bombardier Inc. fell to a 25-year low, a day after breaching C$1 as investors lost patience with delays and costs on the Canadian aircraft maker’s new series of jets.
The company’s widely traded Class B stock dropped 11 percent to 89 Canadian cents in Toronto, its lowest close since January 1991. The shares fell as low as 98 Canadian cents intraday on Wednesday.
The stock’s 34 percent rout this year 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,” David Tyerman, an analyst at Cannacord Genuity, said after Wednesday’s decline. 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.”
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 as of Wednesday had a market value of C$2.3 billion. That was 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 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.