Bombardier shares hit as Airbus talks fail, focus on funding woes

Wed Oct 7, 2015 9:42am EDT
 
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TORONTO Oct 7 (Reuters) - Bombardier Inc shares dropped on Wednesday as the Canadian plane and train manufacturer's failed attempt to sell a majority stake in its troubled CSeries jet program underscored the depths of its financial challenges.

Talks between Bombardier and Airbus broke off on Tuesday after Reuters reported that the Canadian company had offered to sell a majority stake in the CSeries to its competitor.

Shares in Bombardier, which ended the day 15 percent higher on Tuesday following the Reuters report, dropped 16 percent to C$1.49 early on Wednesday.

The news was a blow to Bombardier, whose a new medium-range, narrow-body CSeries is expected to enter service next year, years late and billions over its original budget.

"Overall, we think Bombardier approaching Airbus is negative as it could imply serious funding or CSeries sales issues," said Canaccord analyst David Tyerman in a note to clients, following Reuters' report on the talks on Tuesday.

Airbus and Bombardier issued separate statements in response to the report, confirming the talks, but saying they had ended. A person familiar with the situation said Airbus ended the talks shortly after they became public.

The CSeries has loaded Montreal-based Bombardier down with debt, spurring the company to consider asset sales or other measures to raise cash. As of June 30, Bombardier had $9 billion in long-term debt and $3.1 billion in cash on hand, after burning through some $808 million in free cash flow in the quarter.

"In our view, Bombardier is suffering from a confidence issue - not just investor confidence, but also confidence from customers and prospective customers," said National Bank analyst Cameron Doerksen,in a note to clients on Wednesday.

Bombardier has struggled to win orders for the 100-160 seat CSeries, which some analysts say is stuck in a shrinking market between smaller regional jets and best-selling 150 to 180-seat models. It has not announced a new firm order in more than a year.

"It's a tough part of the market. No one's really been able to get off the ground," Simon Elsegood, aerospace analyst from CAPA-Centre for Aviation said on the sidelines of the CAPA World Aviation Summit in Helsinki. (Reporting by Euan Rocha and Allison Martell; Additional reporting by Victoria Bryan in Helsinki Editing by W Simon)