May 7, 2015 / 12:32 PM / 4 years ago

Bombardier to list rail unit; sees cuts in business jet output

MONTREAL/TORONTO (Reuters) - Bombardier Inc outlined plans on Thursday to list a minority stake in its rail unit as it reported a quarterly profit that topped market expectations but also warned it may cut production of its profitable Global business jets.

Bombardier Inc.'s Alain Bellemare (L), president and chief executive officer, speaks with Pierre Beaudoin, executive chairman of the board, prior to the company's annual general meeting in Montreal, May 7, 2015. REUTERS/Christinne Muschi

The company expects to launch an initial public offering of the rail division in the fourth quarter with the main listing likely to be in Germany, where the business is headquartered.

Reuters reported in April that Bombardier was looking to raise cash from the rail business, Bombardier Transportation, as it grappled with cost overruns in its aircraft business. It acquired a large chunk of the business through its purchase of Adtranz from DaimlerChrysler in 2001.

The company warned it may reduce production of its largest business jets, the Global 5000 and Global 6000, because of weak demand.

While earnings from business jets were steady in the first quarter, net orders dropped to 19 from 46 a year earlier. On a conference call, Chief Executive Alain Bellemare said the weakness was in the Global large-jet program.

“We’ve got a significant presence in Russia, in China, in Latin America, and these markets have been softer than we would like,” Bellemare said. The company said it is assessing the impact of the change on its workforce.

Bombardier also signaled that its long-delayed CSeries medium-range passenger jet could go into service even later than it last forecast. It still expects the plane to be certified by the end of 2015, but said entry into service would be in the first half of 2016.

Bombardier had long forecast the CSeries would enter service in 2015, but in February Bellemare said that could slip a few weeks into 2016 depending on customer decisions.

The company confirmed, as widely expected, that Lufthansa’s Swiss International Air Lines [SWIN.UL] would be the first customer to take delivery.


After its IPO, Bombardier Transportation will continue to be controlled by Bombardier and included in its financial results, the company said.

“Let me be very clear, Bombardier Transportation is not for sale. We like this business and it will remain part of Bombardier,” Bellemare said.

China’s two top trainmakers had been in discussions with Bombardier about buying a controlling stake in the unit, Reuters reported last week. But any bid could have faced political opposition, while sapping Bombardier of cash flow.

Bombardier did not rule out a deal in the future, noting that a public offering would preserve its flexibility to participate in industry consolidation.

In the long run, Bellemare said in an interview with Reuters, Bombardier may take on a partner or investor in the rail unit.

Net income fell to $100 million, or 5 cents a share, from $115 million, or 6 cents, a year earlier. Excluding unusual items, the company earned 9 cents per share in the quarter ended March 31, above analysts’ average estimate of 5 cents per share, according to Thomson Reuters I/B/E/S. Revenue rose nearly 1 percent to $4.40 billion.

Shares closed up 6.7 percent at C$2.54 on the Toronto Stock Exchange.

Additional reporting by Sweta Singh and Sneha Banerjee in Bengaluru; Editing by Robin Paxton, Sayantani Ghosh, Chizu Nomiyama, Nick Zieminski and Peter Galloway

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