Bombardier hits cash snag on Australian train order

Thu Apr 13, 2017 6:56pm EDT
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By Jonathan Barrett and Allison Lampert

SYDNEY/MONTREAL (Reuters) - Bombardier Inc's hopes of receiving initial payments for a A$4.4 billion contract to build 75 electric trains for Australia's Queensland state government have been hit amid accusations of design faults.

The Canadian company had expected to start booking proceeds from that deal late last year to help meet cash-flow targets.

A person familiar with the company's thinking said it had concerns over its rail division's operational cash flow in the first quarter of this year.

Delays in being paid, and the added cost of fixing any manufacturing faults, could make it harder for Bombardier Transportation to reach its 2017 revenue target of around $8.5 billion, up from $8 billion in 2016, said an industry analyst, who didn't want to be named as he is not authorized to talk to the media. Similarly, it aims to push up its EBIT (earnings before interest and tax) margin slightly to about 7.5 percent.

The issues with the Queensland order - ranging from braking problems to driver visibility and disability access - come on top of other hitches that have weighed on Bombardier's rail division. Separately, a Canadian judge is poised to rule on a dispute over a C$770 million contract with Toronto's Metrolinx system.

They also come to light as Bombardier is again discussing a potential merger of its rail unit, the Montreal-based plane and train maker's most reliable cash generator, with Germany's Siemens, people close to the matter said this week.

Siemens' transportation business has also had product flaws in its trams, and there were delays recently in supplying high-speed trains to state-owned German rail operator Deutsche Bahn.

Claas Belling, spokesman for Germany-based Bombardier Transportation, declined to comment on specific, confidential contract terms, but said the Queensland deal is one of several hundred agreements globally. "Some may be performing better than plan, while others may lag," he said in an email to Reuters.   Continued...

FILE PHOTO: Employees work on the base unit of a metro coach inside India's private railway equipment production unit of Bombardier Transportation at Savli, in the western state of Gujarat, India, May 12, 2010. REUTERS/Amit Dave/File Photo