Bombardier Targets Investment Grade in Post-CSeries Cuts
Bombardier Inc. (BBD/B) will try to regain an investment-grade credit rating as it pares new-product spending after completing development of its CSeries jetliner.
The world’s third-largest planemaker is investing $2 billion on new aircraft programs for the second straight year in 2013 and predicted today the figure will drop to $1 billion in 2015. Along with the CSeries, its biggest jet ever, Bombardier is developing aircraft including the Learjet 85, Global 7000 and Global 8000 business aircraft.
“It’s really the leverage that makes the difference in terms of the investment grade” rating, Chief Financial Officer Pierre Alary told investors at a presentation in New York. Bombardier seeks to cut its debt to 2.5 times earnings before interest, taxes, depreciation and amortization from a multiple of 5.5, and “will gradually get to that target, which should permit us to regain our investment-grade rating,” he said.
Bombardier’s debt is rated Ba2 by Moody’s Investors Service and BB by both Standard & Poor’s and Fitch Ratings, all two levels below investment grade. S&P and Fitch cut Bombardier’s credit ratings in November, citing falling cash flow.
New product spending of $1 billion a year “is a sustainable level,” Chief Executive Officer Pierre Beaudoin said.
“Having analyzed all the products we have and how we keep them modern, we feel that at $1 billion for the company we can keep our lines modern and competitive. As our revenues go up, our margins go up and we reduce investment, we will generate significant cash flow.”
Revenue will probably climb to $22 billion to $25 billion in 2015 from $16.8 billion last year with the help of a record backlog, Beaudoin said today. New products such as the CSeries will provide an additional $10 billion to $16 billion a year starting in 2017, he said.
The higher cash flow will be used in part to raise the dividend, keeping it at a level comparable to manufacturing peers, Beaudoin said. Industrial companies typically have a dividend yield of 2 percent to 3 percent, he said.
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