(Reuters) - Fitch Ratings downgraded its debt ratings on Canadian plane and train maker Bombardier Inc (BBDb.TO) on Monday, citing high development spending on its C-Series regional jet as the company tries to crack a market dominated by Boeing Co (BA.N) and Airbus EAD.PA.
Fitch, which cut Bombardier’s issuer default rating and long-term ratings to BB from BB+, also cited “execution challenges” in the rail division.
Last week Bombardier reported weaker-than-expected quarterly revenue, said it would cut 1,200 jobs in the rail unit, and pushed back the C-Series’ maiden flight by six months.
“The change does not increase project costs, but (Bombardier) may incur some penalties, and the delay slightly extends the negative cash cycle,” Fitch said.
The delay raised fresh concerns about slow orders for the new 100- to 149-seat C-Series, Bombardier’s biggest plane to date.
Fitch said Bombardier’s regional-aircraft and business-jet segments have been slow to recover from the recession. It called Bombardier’s backlog “solid”, but also said many of the orders are to be delivered over several years.
“Demand for regional aircraft reflects a lack of confidence at major airlines about supporting regional air service, concerns about turmoil in Europe, high fuel prices, and airline industry capacity,” Fitch said, noting that in large business jets, a key business for Bombardier, demand is also still well below peak levels.
In the rail division, Fitch said the increasing complexity of many projects has caused delays, higher inventory and lower margins.
Last week, Moody’s affirmed Bombardier’s main rating, but lowered its outlook to negative from stable, citing concerns about cash consumption.
Bombardier’s shares were down 1.8 percent at C$3.37 on Monday on the Toronto Stock Exchange.
$1=$1.00 Canadian Reporting by Allison Martell; Editing by Peter Galloway