March 19, 2020 / 6:10 PM / 5 months ago

Coronavirus turmoil poses test as Canada's Bombardier sheds assets

MONTREAL (Reuters) - Canada’s Bombardier Inc (BBDb.TO) could face its first test as a standalone business jet maker as economic uncertainty linked to the rapid spread of coronavirus crimps demand for new corporate aircraft and has sparked fears of a recession, industry executives and analysts said.

FILE PHOTO: An attendee exits the Bombardier Global 6500 business jet at the National Business Aviation Association (NBAA) exhibition in Las Vegas, Nevada, U.S. October 21, 2019. REUTERS/David Becker/File Photo

Bombardier plans to become a “pure play” jetmaker when it completes the sale of its rail division next year to France’s Alstom SA (ALSO.PA). But aerospace analysts have cautioned that a one-unit company without revenue from other businesses would create greater risk in the event of a market downturn.

Executives are seeing signs of softening business jet prices, and buyers who had been looking at new and pre-owned aircraft are now putting off their decisions, they said.

Brian Proctor, president of Dallas-based private jet consultancy Mente Group, said four deals he was working on for a combination of new and pre-owned planes were put on hold in the last two weeks.

“It looks to us that prices for both new and pre-owned planes are softening.”

Bombardier shares rose almost 8% on Thursday after hitting a 32-year low on Wednesday as the outbreak battered aviation stocks.

Despite the cushion of a $14.4 billion backlog, Bombardier will decide in coming weeks whether it would need to adjust production, an industry source familiar with the matter said.

Bombardier, like its business jet-making rivals Gulfstream Aerospace and Embraer SA (EMBR3.SA), said it is still producing planes to fill existing orders.

Bombardier customer VistaJet, for one, will continue taking deliveries, a spokeswoman said.

Spokeswomen for Gulfstream, a division of General Dynamics (GD.N), and Embraer declined comment ahead of the release of quarterly results.

Bombardier said in a statement it is “committed to implementing the necessary measures to protect our employees around the world while maintaining our commitments to customers.”

Coronavirus-hit markets are bracing for a recession with the virus infecting more than 212,000 people across the world and killing over 8,700.

On Wednesday, Textron Aviation, a unit of Textron Inc (TXT.N), announced furloughs for most of its U.S.-based workforce.

Business jet makers are also facing logistic challenges in delivering jets because of government-imposed travel restrictions, two sources said.

Daniel Hall, senior valuations analyst for Ascend by Cirium, expects fewer new orders placed this year due to the coronavirus outbreak, which will pressure prices.

“We expect inventory to rise as corporations cut back. In fact it is very quickly beginning to look like it could be another 2009 for business jets.”

Reporting by Allison Lampert in Montreal; Editing by Matthew Lewis

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