Bombardier faces tough questions about future as share price, credit rating fall
Published Friday, April 3, 2020 12:47PM EDT Last Updated Friday, April 3, 2020 3:06PM EDT
MONTREAL -- Bombardier Inc. is confronting sobering questions about its future following new share price lows and two credit rating downgrades.
The plane-and-train maker's stock sunk to its lowest level in more than 25 years on Thursday, closing at 42.5 cents before falling a further eight per cent in midday trading Friday.
The nosedive presents unprecedented challenges for Eric Martel, while arrives Monday as CEO after the board announced Alain Bellemare's departure last month.
A week earlier, Fitch Ratings cut Bombardier's credit rating to CCC from CCC+ several days after the manufacturer suspended production in Canada, sending 12,400 workers on unpaid leave due to government requirements prompted by the COVID-19 pandemic.
Standard & Poor's also dimmed its view of Bombardier credit to CCC+ from B-, entrenching its junk status.
S&P said Bombardier's "financial commitments appear unsustainable in the long term," warning that the company may have to restructure its debt within 12 months.
The Montreal-based firm carries US$9.3 billion debt despite multiple asset sales over the past five years. It will be reduced to a single revenue stream -- business jets -- after it announced the sale of its rail division to French train giant Alstom SA in February, just as demand for private planes falls away amid the broader economic slowdown triggered by the outbreak.
"It's not looking great. Just not looking great," said Richard Aboulafia, an aviation analyst with Teal Group in the Washington, D.C., area.
Aboulafia said the collapse of oil prices around the globe could ripple out to Bombardier, as large oil-producing companies and states pull back on expenditures like a large-cabin Global 7500 jet, listed at US$73 million.
J.P. Morgan analyst Seth Seifman said that liquidity risks remain a "top-of-mind concern."
While the Global 7500 is sold out through 2022, Seifman lowered his forecast on "bizjet deliveries" by more than 100 for the next two years -- to 91 planes from 162 for 2020 and to 129 planes from 164 for 2021.
"Our downward revisions are the result of supply constraints from COVID-19, with Bombardier closing its Canadian manufacturing operations through at least April 20, as well as expectations for lower business jet demand, including deferrals and cancellations, because of the economic fallout from the virus," Seifman said in a research note.
Disruption to the aeronautics supply chain presents another problem, with plane makers depending on hundreds of suppliers that are now at risk as giants like Boeing Co. and Airbus SE halt production.
Bombardier spokesman Olivier Marcil took issue with the credit rating agency downgrades.
"We disagree with the S&P and Fitch analyses. In particular, S&P acknowledges that its analysis is based on a forecast that is 'highly uncertain at this time,"' Marcil noted. "The comments as to the debt measures that we may possibly have to take are only pure speculation."
Marcil pointed to the agencies' acknowledgment of Bombardier's solid short-term liquidity. "In addition, the reports recognize Bombardier's advantageous positioning in the large business jet sector and our well-filled order book," he said in an email.
Looming on the horizon are debt maturities of US$1.48 billion and US$1.7 billion due in 2021 and 2022 respectively. About 60 per cent of the US$9.32-billion total debt is due within five years.
The US$8.2-billion deal with Alstom and other recent transactions will leave Bombardier with net proceeds of between US$4.2 billion and US$4.5 billion after deducting the Caisse de depot's equity position, as well as adjustments for debts and other liabilities, Bombardier said in February.
The deal is expected to close in the first half of 2021, if it can move through European Union regulatory hurdles.
Bombardier's price has sunk to roughly half its previous 25-year low from February 2016, raising questions about whether the penny stock would remain on the Toronto Stock Exchange.
TSX rules state that it may delist a company if "it appears that the public distribution, price, or trading activity of the securities has been so reduced as to make further dealings in the securities on TSX unwarranted.
"Delistings are a result of a long-term process and careful consideration, they are not determined quickly," spokeswoman Catherine Kee said in an email.
This report by The Canadian Press was first published April 3, 2020.
with files from Julien Arsenault