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Bombardier throttles back on spending

In a memo to all staff obtained by The Globe and Mail, Mairead Lavery,
vice-president of finance for the aerospace division, said the group’s
“performance in cash generation was not in line with budget for the
first six months of the year.” Because Bombardier has limited control
over when it receives cash from customers, it must exercise stricter
control over discretionary spending, she said.

Consequently, the company has told staff to rein in spending through a
range of measures, including cancelling off-site meetings, suspending
new hiring, and even cutting all funding for Christmas parties. Spending
on consultants is to be reduced or delayed, most training is suspended,
there will be no office renovations, and all capital spending will have
to get senior management approval.

And hitting particularly close the home for the transport giant: most travel has been suspended.

The
clampdown on spending underscores the lengths firms are going to in the
current low-growth economy to keep costs down and ensure cash is
earmarked for the best chance of solid returns. Bank of Canada Governor
Mark Carney said last month many Canadian companies are sitting on
excessive cash piles that should be deployed for growth opportunities.

Bombardier
spokeswoman Haley Dunne said the firm is being careful with cash
because the aerospace division is “in a period of peak spend for several
of our development programs.”

Currently, Montreal-based
Bombardier is testing the systems on its new C Series jetliner, which
will have 100-149 seats. It hopes to take the first flight by the end of
the year and begin deliveries some time in 2013. It is also developing
the new Learjet 85 business jet, which is also set for delivery next
year.

The memo was a “reminder to employees” to focus on business
priorities and take a pause in discretionary spending, Ms. Dunne said.
“We are still going to celebrate Christmas, but in a different way that
is not related to our cash.”

There is no specific amount of cash the company is trying to save, Ms. Dunne said. “This is more of an awareness exercise.”

Bombardier
had about $2.5-billion in cash on June 30, among the highest cash
hoards among Canadian public companies. However, this was down from
$3.4-billion on Dec. 31. The aerospace division used up $504-million in
cash in the second quarter, after $572-million in cash usage in the
first quarter of the year.

In its second-quarter conference call
last month, Bombardier’s chief financial officer Pierre Alary said the
company expects “third-quarter free cash flow to be essentially neutral,
while the fourth quarter should be very strong.”

The company
makes large investments in creating new aircraft, and it can be a long
time before money starts to flow in from product sales. In her memo, Ms.
Lavery said that “generating free cash flow is an important commitment
we have made to cover the historically high level of investment in
product development.”

The austerity program will be in place until Jan. 15, when it will be reviewed.