Bombardier takes financial hit as Mesa undergoes bankruptcy
Bombardier takes financial hit
as Mesa undergoes bankruptcy
Bombardier Aerospace risks losing an order for 10 regional jets after U.S.-based Mesa Air Group obtained bankruptcy protection as it looks to reduce its operating costs.
January 5, 2010 By Ross Marowits | The Canadian Press
Jan. 5, 2010 – Bombardier Aerospace risks losing an order for 10 regional jets after U.S.-based Mesa Air Group obtained bankruptcy protection as it looks to reduce its operating costs.
The order from Mesa for 10 CRJ 700s was deferred last year for delivery until 2013, but so far "they exist in the Bombardier Aerospace backlog, that is unchanged," spokesman John Arnone said in an interview.
Given that delivery is several years away, the bankruptcy filing shouldn't affect current production of regional jets, already slated to be reduced this year because of slower demand that has led Bombardier to mark 600 employees in Montreal for layoff in the spring.
Montreal-based Bombardier has had a relationship with Mesa of nearly 30 years and is the Phoenix-based carrier's second-largest creditor after Wells Fargo Bank.
Mesa's liabilities were US$869 million as on Sept. 30, 2009, including $133 million owed to Bombardier.
Although Bombardier faces financial exposure from the Mesa filing, Arnone said it is adequately provisioned.
"We at Bombardier recognize that these are tough times in the aviation industry,'' he said from Toronto.
Like other customers that have gone through corporate restructuring, Mesa will emerge stronger and in a better position to deal with the economic climate, Arnone said. He said Bombardier was unaware of Tuesday's Chapter 11 bankruptcy filing but has been in discussions about restructuring possibilities outside court protection.
Mesa has 122 Bombardier aircraft in its fleet, including 16 Dash 8 turboprops. About 52 of its 130 planes are parked because it needs to reduce costs.
National Bank Financial analyst David Newman said he believes the 10 CRJ700s on order run the risk of being cancelled.
"The CRJ is a lower-margin product and we believe this termination should not have a material near-term impact of production or earnings, other than reduced overhead absorption,'' he wrote in a report.
Cancellation of the order would reduce the CRJ backlog by about two months, Newman added.
He said Mesa's bankruptcy could be short since the company has a labour agreement with its pilots union and a tentative deal with flight attendants.
On the Toronto Stock Exchange, Bombardier shares were unchanged at C$4.87 in afternoon trading.