Bombardier Inc. cautioned that private-aircraft prices will remain under pressure as it posted a wider-than-expected loss, adding to Chief Executive Officer Alain Bellemare’s burdens as he tries to turn around Canada’s largest aerospace company.
“The business-jet market will stay soft for a while,” Bellemare said in an interview Friday. “There will come a time where it will start to get better. We just don’t know when.”
Shrinking demand for corporate planes--typically Bombardier’s most profitable business--is weighing on Bellemare as he works to increase profit and cash flow. He took over last year following delays in the development of the C Series commercial jet, which entered service last month--about 2 1/2 years after the initial target.
Bombardier swung to an adjusted loss of 6 cents a share in the second quarter, the company reported in a statement. Analysts had predicted a loss of 5 cents, according to the average of estimates compiled by Bloomberg. Revenue dropped 6.7% from a year earlier to $4.31 billion, compared with an average estimate of $4.18 billion.
The Montreal-based company’s Class B shares fell 1.8% to C$1.96 at 1:59 p.m. in Toronto while Canada’s benchmark S&P/TSX Composite Index rose 0.8%. The planemaker’s stock had gained 49 percent this year through Thursday.
“The business-jet end markets have weakened in the past three months,” said Cameron Doerksen, a National Bank Financial analyst. Still, “from my perspective, the quarter was pretty much in line with expectations, with a few positives. Cash use was better, and the margins in business jets were better.”
Oversupply of private jets has been particularly problematic for models with fewer seats, Bellemare said on a call with analysts. While sales of Bombardier’s smallest product, the Lear 75, improved in the latest quarter, the company is attempting to assess how to “best position” the plane. The planemaker cut production of its Global 5000 and 6000 business jets last year, and delayed entry into service of another model by two years as sales of large private planes dropped.
Any further output cutbacks in business aircraft would amount to “fine tuning,” and would likely target the Lear 75, Bellemare said Friday. Second-quarter earnings before interest and taxes in the business-jet unit jumped 78% to $212 million.
“We are at the right level on the production side,” Bellemare said. “We have flexibility. We can go down a little bit, we can go up a little bit. We’re trying to be aggressive on the cost side.”
Despite the weak business-jet demand, Bombardier maintained its full-year forecasts of $16.5 billion to $17.5 billion in revenue and $200 million to $400 million in EBIT. The company also stuck by its prediction of spending $1 billion to $1.3 billion of free cash flow.
The planemaker spent $490 million of free cash flow in the second quarter, after burning through $808 million a year earlier. The figure is a key variable for analysts, who had predicted Bombardier would spend $623 million in the latest quarter.
C Series Output
Increased C Series production contributed to a $586 million loss before interest and taxes at Bombardier’s commercial aircraft unit, the company said. That compares with a year-earlier loss of $10 million.
“The development phase of the C Series is now done, and from a cash consumption standpoint this is going to be a tailwind for us,” Bellemare said. Bombardier expects to build 12 to 15 units of the jet this year, climbing to about 30 to 40 next year.
Bombardier’s adjusted results for the latest quarter exclude a provision of $492 million stemming from 127 C Series purchase agreements, including 75 aircraft that Delta Air Lines Inc. agreed to buy in April.
Bombardier’s net loss according to generally accepted accounting principles was $490 million, or 24 cents a share, compared with net income of $125 million, or 6 cents, a year earlier.