February 17, 2016 / 11:21 AM / 4 years ago

Bombardier wins Air Canada order for CSeries jets; shares surge

MONTREAL (Reuters) - Bombardier Inc (BBDb.TO) received the first order in 16 months for its CSeries jets, sending its shares up as much as 30 percent and overshadowing news of lower-than-expected quarterly results and plans to cut 7,000 jobs.

Latvia's national airline AirBaltic, a launch partner, and Canada's Bombardier present a new CS100 aircraft in Riga international airport, Latvia, November 27, 2015. REUTERS/Ints Kalnins

The Montreal-based company said on Wednesday that it signed a letter of intent to sell Air Canada (AC.TO) 45 CSeries, with an option for 30 more of the narrow body aircraft. The order is worth as much as $3.8 billion based on the CSeries’ list price.

Separately, the Quebec government, which gave Bombardier a $1 billion lifeline last October, said it would drop a lawsuit against Air Canada tied to its not living up to aircraft maintenance commitments in the province. In return, the airline agreed to conduct maintenance on CSeries in the province.

Shares of Bombardier, which also benefited from a planned reverse stock split, closed up 21 percent at C$1.09 in Toronto after climbing to C$1.17.

Bombardier Chief Executive Officer Alain Bellemare said the company still wanted federal assistance for the CSeries, which has been plagued by delays and cost overruns.

“We are hoping the federal government would come very close to what Quebec did,” Bellemare said on a conference call, referring to Quebec’s equity stake in the CSeries.

The Canadian government said it is still in talks with the company on its request for aid and stressed that it had put no pressure on Air Canada to buy jets from Bombardier.

Ottawa promised on Wednesday to ease some restrictions on Air Canada to help the carrier be more competitive.

Air Canada CEO Calin Rovinescu said the Quebec government’s decision to drop the lawsuit was part of the broader deal to purchase the CSeries and use a third-party Quebec supplier to perform all of the heavy maintenance on the aircraft.

“It was a good compromise,” Rovinescu told reporters. Earlier on Wednesday, he called the jet purchase “100 percent a commercial deal” with no government pressure.

“That being said, the governments (of Quebec and Canada) do see the value of Air Canada stepping up to the plate at this moment in time ... and it gives a shot in the arm to the aerospace industry in Canada.”

Bombardier now has 678 total orders and commitments for the CSeries, including 243 firm orders. The jet competes with Boeing Co’s (BA.N) 737 and Airbus Group’s (AIR.PA) A320 series.

The CSeries order, slated for delivery starting in 2019 and largely to replace some of Air Canada’s older Embraer (EMBR3.SA) jets, is yet another setback for the Brazilian planemaker which also missed out on a United Airlines UAL.N order last month.

Embraer did not comment on the Air Canada order. It said it remained committed to its positive relationship with Air Canada.


Despite the boost from the Air Canada order, Bombardier said it was continuing with its restructuring and will cut its workforce by about 7,000 over the next two years. Of these about 2,800 cuts will be within Canada. Nearly half the cuts will be in Bombardier’s rail arm that has a large workforce in Europe.

Bombardier, which has about 64,000 employees, expects to record $250 million to $300 million in restructuring charges in 2016 for the layoffs.

The job cuts will be mainly in the company’s aerostructures and engineering services and transportation divisions in Canada and Europe.

At the same time, Bombardier will ramp up hiring to support production of the CSeries and its new Global 7000 business jets.

The company forecast 2016 revenue of $16.5 billion to $17.5 billion, below analysts’ expectations of $18.07 billion, according to Thomson Reuters I/B/E/S.

Bombardier’s net loss narrowed to $677 million, or 31 cents per share, in the fourth quarter from $1.6 billion, or 92 cents per share, a year earlier.

Excluding special items, Bombardier broke even, but analysts were expecting a profit of 2 cents per share.

Quarterly revenue came in at $5.02 billion, well below analysts’ expectations of $5.48 billion.

Bombardier, which received recent cash infusions from pension fund Caisse de dépôt et placement du Québec as well as the Quebec government, said it expected free cash flow usage of $1.0 billion to $1.3 billion this year.

The company also confirmed Reuters’ report of a reverse stock split to prop up its sagging share price, which had been below C$1 since late January, its lowest in 25 years.

Bombardier will determine the ratio for the reverse stock split later, but it said it was targeting an initial post-consolidation price of C$10 to C$20 per class A or Class B subordinate voting share.

Addition report by Euan Rocha in Toronto and Amrutha Gayathri in Bengaluru; Editing by Lisa Von Ahn and Tom Brown

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