Bombardier has completed its exit from commercial aviation, selling its remaining stake of its joint venture with Airbus as the beleaguered company looks to save cash and improve operations.
And there may be more sell-offs to come, as the Quebec-based company continues to look at “strategic alternatives” that will help it accelerate the payment of its significant debt load, which has ballooned to more than US$9 billion.
Bombardier said Thursday that it will transfer its shares in the Airbus partnership, which produces the A220 aircraft formerly known as the CSeries, to Airbus and the Government of Quebec. The move provides Bombardier with approximately US$600 million in cash from Airbus and gets the company off the hook from investing a further US$700 million into the program.
The deal boosts Airbus’ stake in the program from just over 50 per cent to 75 per cent, while Quebec’s share jumps from 16 per cent to 25 per cent.
Bombardier sunk more than US$6 billion into the development of the aircraft, which chief executive Alain Bellemare said on a conference call with analysts Thursday “was the biggest challenge in 2015 when we joined the company.”
“We were losing a lot of money. It was a cash drain,” Bellemare said.
“The strategy was always to exit commercial aircraft, and we’ve done that very successfully, while protecting jobs... We’re going to continue looking at our options and see if there are ways we can accelerate the deleveraging phase of the turnaround plan.”
The company said Thursday that its commercial aviation business, which had included the Airbus A220, the Q400 and the CRJ programs, was burning approximately US$1 billion in cash and lost the company US$400 million as of 2016.
“Addressing the challenging portfolio was a fundamental step in the company’s turnaround plan,” Bombardier said in a statement.
The divestitures are expected to continue. Analysts have said Bombardier may have to consider selling one – or potentially all – of its existing assets, which now only includes its rail division and private business jet program.
Multiple reports have suggested that France’s Alston is in talks to purchase Bombardier’s rail division for just under US$7 billion. Earlier this month, a Wall Street Journal report also said the company was in talks to sell its private jet business to U.S.-based Textron Inc.
When asked about potential asset sales on a conference call with analysts, Bellemare would not confirm the reports, but said the sale of the A220 stake “gives us plenty of liquidity to do the right things.”
“We are looking at our strategic options. As you understand, this is very sensitive,” he said. “We believe we have very strong assets, we have a strong cash position, and we’re going to do it the right way.”
Bombardier executives were challenged by some analysts on the conference call Thursday, with Goldman Sachs analyst Noah Poponak questioning what the company’s strategy is going forward.
“It’s starting to look more like an asset liquidation than a turnaround,” Poponak said.
Bellemare reiterated that the fundamental reason the company is looking at strategic options “is to accelerate the deleveraging of the business.”
“We have been doing a lot of cleanup over the last five years, addressing some of the underperforming businesses,” he said.
“We are now ending up with two very strong franchises – the train side, and the business aircraft side. We have a strong cash position and we have options.”
Bombardier, which reports its financial results in U.S. dollars, saw revenue fall three per cent in 2019 when compared to last year, down to $15.8 billion. The company’s net income fell from a $318 million profit last year to a loss in 2019 of $1.6 billion.