News
Bombardier may further cut business jet production

May 29, 2009 – Bombardier Inc. may further cut aircraft production as it looks to preserve cash to help weather the storm that is expected to batter its first-quarter results next week, UBS analyst Fadi Chamoun says.

The Montreal-based company's strong liquidity, profitable railway segment and investments in new products should allow Bombardier to "weather the downturn and capitalize on the recovery when it materializes."

"In the near-term, however, production rates remain high particularly in business jet and another cut should be forthcoming (and likely will be well received) in order to protect cash balances," Chamoun said Wednesday in a report.

Bombardier announced two months ago that 3,000  jobs would be slashed around the world to cope with weaker demand for business jets. That's on top of 1,360 jobs that were cut earlier.

Chamoun's outlook is underscored by aggressive cuts made by Bombardier rivals Cessna (NYSE:TXT), a division of Textron, and Gulfstream.

Cessna's deliveries are expected to be down up to 38 per cent this year, with management recently talking about further declines next year. Gulfstream expects its deliveries to be down 36 per cent in 2009.

So far, Bombardier is projecting a 30 per cent production decline.

Chamoun, who rates Bombardier shares a buy with a $5 target, expects Bombardier's earnings will fall 29 per cent to nine cents per share when results are announced June 3. The analyst average is for 10 cents per share.

However, while he agrees with the earnings forecast, Cameron Doerksen of Versant Partners said he doesn't expect any change to Bombardier's aircraft deliveries guidance next week.

Lower revenues and deliveries could reduce the aerospace division's operating margin to 7.5 per cent, down from 9.8 per cent in the fourth quarter and 8.7 per cent last year.

Chamoun pegs the margin at 4.9 per cent.

UBS expects commercial aircraft deliveries will be down five per cent from last year, with a strong pickup in the second half of the year as production of its popular Q400 turbo reaches its annual target of 65 aircraft.

Commercial jet aviation production is susceptible to future cuts unless orders pick up later this year or early next, said Chamoun.

Doerksen expected aircraft deliveries during the first quarter will be 71, down from 87 last year, with business jets accounting for 41 of this year's total. He forecasts an earnings margin of 7.5 per cent.

Business jets accounted for 41 per cent of Bombardier's total operating earnings in fiscal 2009.

On the Toronto Stock Exchange, Bombardier shares closed down 13 cents to $3.64, a drop of 3.45 per cent. Over the last year, they've traded between $2.22 and $8.94.