Bombardier C Series Jet Source: Bombardier

Bombardier Projects Profit and Sales Will Rebound Next Year

CEO Alain Bellemare and his team are working to overcome cost overruns and a delay of more than two years on the $6 billion C Series jetliner, a model intended to compete with planes from Boeing Co. and Airbus Group SE.

Bombardier Inc. (IW 1000/220) predicted sales and pretax profit will rebound in 2017 and cash drain will improve as Chief Executive Officer Alain Bellemare’s cost-cutting plan starts to bear fruit.

Revenue will increase by a percentage in the low single digits in 2017 after falling this year, Montreal-based Bombardier said in a statement. The planemaker also reconfirmed a goal to break even on a cash-flow basis in 2018, and a target to reach $25 billion in annual revenue by 2020 -- about 50% more than its projection for this year.

“We have made huge progress in 2016,” Bellemare said in a presentation to analysts and investors Thursday in New York. “We are very well-positioned for solid top line growth” in the coming years, he said.

Bellemare and his team are working to overcome cost overruns and a delay of more than two years on the $6 billion C Series jetliner, a model intended to compete with planes from Boeing Co. and Airbus Group SE. This year alone, the CEO has announced about 14,500 job cuts in a bid to lower operating costs and improve margins.

“Management is clearly controlling the controllables as their cost reduction initiatives begin to take hold,” Walter Spracklin, an analyst at RBC Capital Markets, said in a note to clients. “The improving cost profile sets the stage for higher operating leverage when demand levels pick up.”

Bombardier last month reported better-than-expected third-quarter results and forecast 2016 profit at the high end of its previous outlook.

Management Overhaul

Since his appointment in February 2015, Bellemare has overhauled Bombardier’s management team, bringing in executives such as Fred Cromer, an airline and leasing industry veteran who now runs the company’s commercial aircraft unit. Of the eight people scheduled to address investors on Thursday, only two were with the company at the start of last year.

Earnings before interest, taxes and special items next year will rise to $530 million to $630 million, while free cash-flow usage will probably decline to between $750 million and $1 billion, Bombardier said. Last month, the company said it expected to report 2016 Ebit before special items of $350 million to $400 million and to burn through $1.15 billion to $1.45 billion in cash.

Analysts Skeptical

Analysts are skeptical Bombardier will meet its goal of breaking even in 2018, expecting cash flow to turn positive only in 2019, according to estimates compiled by Bloomberg. Bombardier is expected to use about $158 million of cash in 2018, according to analysts. Wall Street puts 2019 cash flow at $57 million.

Bellemare’s restructuring plan calls for Bombardier to spend $250 million to $300 million next year, logged as a special item, “to further improve efficiency, reduce costs and optimize” operations, according to the statement.

Bombardier plans to deliver 80 to 85 commercial aircraft and 135 business jets next year. The planemaker has said it expects to deliver 30 to 35 C Series planes next year as production increases, from seven this year.

By Frederic Tomesco

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