January 15, 2015 / 12:52 PM / 4 years ago

Bombardier pauses Learjet program, cuts jobs; shares drop 20 pct

TORONTO (Reuters) - Bombardier Inc said Thursday it had suspended the development of its new Learjet 85 business aircraft, trimmed its forecasts for 2014 and cut 1,000 jobs in Mexico and the United States, sending its shares plummeting more than 20 percent.

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

The Canadian plane and train maker said cash flow from aerospace operations would be about $800 million for 2014, below its previous forecast of between $1.2 billion and $1.6 billion, even though plane deliveries were a little more than expected.

It also lowered margin estimates, citing pricing pressures on new aircraft. It said demand for the new Learjet had been weak, and demand for light aircraft in general had been depressed since the economic downturn.

The news comes as Bombardier pushes to bring its high-stakes CSeries jet into service in the second half of this year. It is racing to complete flight tests, which had to be halted for several months last year because of a mechanical glitch.

The new Learjet had also been in the midst of flight testing. With another new business jet, the Global 7000 and 8000, nearing first flight, Bombardier had been facing the prospect of three simultaneous flight-test programs.

“While we believe the Street was already somewhat concerned about the Learjet 85 program because of previous delays, we believe this decision will raise concerns about management’s decision process,” wrote Desjardins analyst Benoit Poirier.

Even so, Poirier said management had made the right call on the Learjet, given their focus on lowering capital expenditures as they develop the CSeries and Global 7000 and 8000 jets.

Beaudoin had said in October the CSeries and the new Global jets were higher priorities than the Learjet 85. Even so, asked whether Bombardier might abandon the program, Beaudoin said it was moving ahead, and that it would be a success story.

Bombardier said the $1.4 billion charge was mainly related to impairment of the Learjet 85 development costs. The 1,000 job cuts will be at sites in Querétaro, Mexico, and Wichita, Kansas.

The company now expects aerospace earnings before financing expenses, financing income and income taxes, excluding special items, to be 4 percent of the unit’s revenue for 2014, down from a previous forecast of 5 percent. On the transportation side, it expects the margin to be 5 percent, down from its last forecast of 6 percent.

Shares were down 20 percent at C$3.30 in afternoon trading on the Toronto Stock Exchange.

With additional reporting by Euan Rocha; Editing by Bernadette Baum

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