Bombardier restructuring exposes liquidity, debt risks: analysts

Wed Jul 30, 2014 4:09pm EDT
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By Solarina Ho

TORONTO (Reuters) - Bombardier Inc's (BBDb.TO: Quote) unexpected aerospace restructuring announcement last week casts an uncomfortable light on the division's ongoing struggles, with credit rating firms uncertain about its longer term prospects.

The restructuring, which was announced July 23, eight days before the release of second-quarter results on Thursday, is the latest bad news for the beleaguered unit, bruised in recent years by multiple delays in its cash-draining CSeries program and by shrinking market share for its existing aircraft portfolio.

In the reorganization, Bombarier will cut 1,800 jobs and split aerospace into three units.

Analysts say the action is a prudent step that will streamline bloated operations, offer more transparency on profit and margins, and potentially save the company more than $100 million.

But ratings agencies still see risk as the company continues to burn through a substantial amount of cash to pursue the CSeries.

"There is now more of a risk than before - even higher costs, which could lead to additional debt, additional cash burn, additional liquidity issues," said DBRS Assistant Vice President Viktor Vorobiev, who in November was the first to downgrade the Montreal-based aircraft and train maker.

"There's a greater chance of uncertainty for sure."

Bombardier's shares, which lag far behind those of its peers as well as the Toronto Stock Exchange's S&P/TSX composite index, have slumped more than 20 percent since the beginning this year, and ended trading on Wednesday at C$3.67, up 7 Canadian cents.   Continued...

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