(Reuters) - Bombardier Inc (BBDb.TO) stunned investors on Thursday by replacing its chief executive, suspending dividends, and saying it needs to raise $2 billion in new debt and equity as it revealed more cost overruns in its long-delayed CSeries passenger jet program.
Shares in the Canadian plane and train maker sank more than 12 percent to C$2.65 on the news. The Montreal-based company, which is now testing the new CSeries jet after years of delays, had said just last month that it had enough liquidity to fund its development programs.
“From an investor perspective, you always hate to have a situation like this where a company bets its future on a product line,” said Wendell Perkins, a senior managing director at Manulife Asset Management, which owns Bombardier stock.
“The successful run of the CSeries ... is still a big question mark.”
Bombardier also reported a big quarterly loss, hurt by a $1.4 billion charge announced last month relating to its decision to suspend development of a new Learjet.
It plans to raise about $600 million in equity and up to $1.5 billion in new long-term debt. As well, it will suspend dividends on both Class A and common shares.
Rising concerns about the CSeries could weigh on demand for the share issue. David Cockfield, a portfolio manager at Northland Wealth Management, said his firm wants greater clarity on the CSeries before investing in the company.
“I’m just waiting for them to get the plane off the ground,” he said.
Bombardier said it would explore other options to reduce debt, including “certain business activities’ potential participation in industry consolidation”.
Canaccord Genuity analyst David Tyerman said that sounds as if Bombardier is willing to consider divesting or partially divesting assets.
A former United Technologies Corp (UTX.N) executive, Alain Bellemare, will become chief executive on Friday, replacing Pierre Beaudoin, who will become executive chairman. Pierre Beaudoin’s father, Laurent Beaudoin, will retire as chairman.
Pierre Beaudoin, whose family controls the company, said he personally approached Bellemare about the job and recommended him to the board. Beaudoin said he would continue to work full time, with a mandate to focus on financing and mergers and acquisitions.
Asked whether the move was a response to pressure from investors, Beaudoin said it was not.
“The new CEO, I think he really is an executor. He’s not being brought in to restructure the company,” Tyerman said.
Until the end of last month, two of United Technologies’ main aerospace divisions, engine maker Pratt & Whitney and parts unit UTC Aerospace Systems, reported to Bellemare, who reported to the CEO. The CSeries, a narrow-body, medium-range jet, is powered by a Pratt engine.
On a conference call, Beaudoin said the cost of the CSeries program is now about $5.4 billion. Last February it said costs would increase by $1.05 billion, which brought the total to $4.95 billion.
Bombardier reported a net loss of $1.59 billion, or 92 cents a share, for the fourth quarter, after earning $97 million, or 5 cents, a year earlier. Revenue rose 12 percent to $5.96 billion.
Excluding the Learjet charge, the company earned 4 cents a share, compared with analysts’ average estimate of 2 cents, according to Thomson Reuters I/B/E/S.
Additional reporting by Solarina Ho and John Tilak in Toronto, Lewis Krauskopf in New York; Editing by Sriraj Kalluvila, Saumyadeb Chakrabarty; Bernadette Baum, Peter Galloway and Jeffrey Hodgson