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Feb 15, 2018

Bombardier's cash flow surges in boost to CEO's turnaround

FILE PHOTO: A Bombardier logo is seen at the Bombardier plant in Belfast

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Bombardier Inc. climbed after the highest cash flow in seven years bolstered prospects for the company’s turnaround plan.

Free cash flow increased 76 per cent to $872 million in the fourth quarter, Canada’s biggest aerospace company said Thursday as it reported earnings. That exceeded analysts’ expectations for the closely watched figure.

The improving results underscore progress under Chief Executive Officer Alain Bellemare after two aircraft-development programs left Bombardier awash in debt. Having shored up liquidity, cut thousands of jobs and agreed to team with Airbus SE on the CSeries jetliner, Bellemare now is working to push the company’s next big revenue generator -- the Global 7000 business jet -- into service late this year.

The earnings report was “well ahead of expectations across all segments,” Fadi Chamoun, a BMO Capital Markets analyst, said in a note to clients. “We sense there is greater demand momentum in business aviation and opportunities for growth beyond what is currently reflected in our forecast.”

The company’s widely traded Class B shares rose 8.8 percent to C$3.58 at 12:10 p.m. in Toronto after advancing as much as 12 per cent for the biggest intraday gain in almost three weeks. Bombardier climbed 8.6 per cent this year through Wednesday, while Canada’s benchmark S&P/TSX Composite Index dropped 5.4 per cent.

EXCEEDING EXPECTATIONS 

Bombardier’s free cash flow topped the $662 million average of analyst estimates compiled by Bloomberg. It was the highest for a fourth quarter since fiscal 2011.

“We are moving out of our investment cycle and into a strong growth cycle,” Bellemare said in the statement. “Our focus is on flawless execution: bringing the Global 7000 into service; delivering on our major rail projects; and closing the Airbus partnership.’’

Adjusted earnings were two cents a share, exceeding expectations that the company would break even. Sales climbed 7.6 per cent to $4.72 billion. Analysts had projected $4.75 billion.

Revenue is set to rise in all divisions in 2018, Bombardier said. The Montreal-based company makes trains and aircraft parts in addition to planes.

For all of 2017, Bombardier burned threw $786 million in cash, better than the $1 billion that the company had expected to use. That meant ending the year with a $3.1 billion cash balance, leaving the company “well positioned’’ to break even on a cash-flow basis this year -- a goal of Bellemare’s turnaround plan.

 



'CLEAR PATH'

Bombardier sees “a clear path” to annual cash generation of $750 million to $1 billion by 2020, according to a presentation on the company’s website.

The company got an unexpected boost last month when the U.S. International Trade Commission ruled that imports of the C Series don’t harm American companies and workers. Boeing Co. had accused Bombardier of selling its biggest jet in the U.S. at less than fair value, while benefiting from unfair government subsidies.

Shipments of C Series planes to Delta Air Lines Inc. will probably begin this year from Bombardier’s Mirabel, Quebec, facility, Bellemare said Thursday. The carrier has expressed a preference for U.S.-made aircraft.

ALABAMA PLANT 

“Clearly the Delta aircraft are in skyline for 2018. They have always been,” he said. The trade commission’s decision gives Bombardier “flexibility to ship the aircraft out of Mirabel to Delta. At this stage, we have to work through the logistics of it.’’ Bombardier remains committed to building a plant in the U.S. next to an existing Airbus factory in Mobile, Alabama, he said.

Delta spokesman Morgan Durrant said the airline intends to take as many deliveries as possible from the new Alabama facility. 

“However, as the ITC notes, we have contractual commitments to begin taking deliveries later this year, and the ITC decision clears the way for Delta to accept deliveries in Canada as well,” he said by email. “We are evaluating how to best match Bombardier’s production capacities with our fleet needs.”

Separately, Bombardier said it now holds 72.5 percent of its rail business, up from 70 percent. The unit’s 2017 results, which included a 13 percent jump in revenue, outpaced the performance targets in the company’s agreement with Caisse de Depot et Placement du Quebec, which owns the rest of the division, Bombardier said.