Bombardier results raise cash burn concerns, hurt stock

Thu May 1, 2014 6:05pm EDT
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By Solarina Ho

(Reuters) - Bombardier Inc BBDb.TO on Thursday reported a sharp increase in capital spending, sparking concern about the company's cash burn rate as it continues to pour money into its CSeries aircraft program.

The cash burn, combined with weaker-than-expected quarterly results, sent shares of the Canadian aircraft and train maker into a tailspin. Shares sank over 8 percent before paring losses to close the day down 5.9 percent at C$4.15.

Bombardier is spending billions to develop the CSeries, a high tech narrow-body plane to compete with smaller passenger jets from Boeing Co BA.N and Airbus Group AIR.PA. The program has been delayed four times and costs have climbed.

Bombardier said its free cash flow use rose more than 35 percent in the first quarter to $915 million from $590 million a year ago, causing some concern among equity analysts and shareholders. The company however, attempted to allay those fears on a conference call.

"We don't anticipate to have to go back to any sources to increase our liquidity. We have ample liquidity to meet our plan," said Chief Executive Officer Pierre Beaudoin, reaffirming the company's full-year capital expenditure forecast of between $1.6 billion and $1.9 billion. "We don't think we need to borrow government money on this program, that's already been done."

Some debt market analysts concur that the company remains on a solid financial footing.

"The company used significantly more free cash flow in Q1 than the street was expecting and that seems to have immediately shifted concerns to liquidity for certain investors," said Citi's Credit analyst Manish Somaiya.

He added that liquidity was strong and noted little change in Bombardier's bond prices, however, with cash flow likely to improve over the coming months, "I don't see a need for the company to do another bond issue," Somaiya said.   Continued...

A plane flies over a Bombardier plant in Montreal, January 21, 2014. REUTERS/Christinne Muschi