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PRINT EDITION
Bellemare's Bombardier turnaround moves ahead with strong rail results
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By NICOLAS VAN PRAET
  
  

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Friday, February 16, 2018 – Page B1

MONTREAL -- Bombardier Inc.'s improving sales and financial outlook are buoying the odds that CEO Alain Bellemare can pull off his five-year turnaround effort at the Canadian aerospace company.

Bombardier narrowed its net loss for the fourth quarter, boosting revenue and free cash flow as a strong performance in rail allows the company to reclaim a piece of that business from a key investor. In addition, the company is experiencing better sales activity for its luxury jets and trains. The stock jumped 11 per cent in afternoon trading on Thursday to close at $3.66.

Mr. Bellemare, who took over as chief executive officer in February, 2015, has pulled Bombardier back from the brink of bankruptcy after it nearly toppled that year under the weight of heavy investments to bring two all new aircraft to market. Now, with those capital-intensive investments coming to an end, he plans to rebuild earnings by growing revenue to US$20-billion by the end of 2020.

"So far, he has consistently met or exceeded, operationally, what he said he would do," said Nicholas Heymann, an analyst at William Blair in New York, adding that the C Series delivery miss for 2017 might be the only exception. "Right now, there's more confidence that you've got a good line of sight to break even for cash use in 2018. And that's a very important milestone." Bombardier generated almost US$900-million in free cash flow for the three months ended Dec. 31, the Montreal-based multinational said in reporting earnings. That was the highest for a fourth quarter in seven years, according to Bloomberg data.

Bombardier tallied a net loss of US$109-million on revenue of US$4.7-billion for its latest quarter, improving on a US$259-million loss and US$4.3-billion revenue in the same quarter last year. Earnings before interest and taxes was US$149-million, double the yearearlier period. Stripping out all special costs and gains, the company had a profit of 2 US cents a share. On that basis, analysts were forecasting the company to break even.

For fiscal 2017, Bombardier surpassed profit-margin guidance on all its business segments. The company burned through US$786-million in cash for the year, US$200-million less than forecasted. It had US$3.1-billion in cash on hand at the end of December.

"We're starting 2018 with great momentum," Mr. Bellemare said.

Bombardier's rail business in particular delivered another strong quarter, with revenue of US$2.5-billion, new orders worth US$10.2-billion and an EBIT margin before special items of 8.4 per cent. The unit is entering a phase of intense deliveries that will accelerate revenues. Among the projects beginning shipment is a US$1.6-billion deal to supply trains for Swiss operator SBB.

Because of the strong performance, Bombardier's stake in the rail unit will increase to 72.5 per cent from 70 per cent under an ownership pact with Caisse de dépôt et placement du Québec.

The pension fund manager's position will fall by an equal amount.

Under a deal struck between the partners in 2016, the Caisse bought 30 per cent of Bombardier's rail business for US$1.5-billion. The investor's stake is subject to annual adjustments up or down depending on how the unit performs. The better the performance, the lower the Caisse's share of the spoils, down to a minimum ownership threshold of 25 per cent and a 7.5-per-cent return.

The other key part of Mr. Bellemare's turnaround effort is the luxury-jet franchise. The scheduled entry into service of Bombardier's new Global 7000 jet later this year, combined with sales of smaller Challenger and Learjet models, will make up three quarters of a planned US$4-billion increase in revenue over the next three years, according to management's turnaround plan.

Bombardier says orders for the Global 7000 are strong, with the aircraft largely sold out through 2021. It says the market for business jets over all is recovering, confirming reports by other manufacturers. Inventory of preowned business aircraft has dropped to its lowest level in years, flight hours are increasing and sales activity is picking up, the company says.

Meanwhile, the biggest cloud enveloping the plane maker - the legal uncertainty surrounding its C Series commercial airliner program - is lifting.

The U.S. International Trade Commission (ITC) last month rejected a petition by Boeing Co.

calling for duties on C Series planes imported into the United States. The quasi-judicial body ruled that Boeing suffered no injury from the C Series. It remains unclear whether Boeing will launch an appeal, but the ITC's written decision, made public on Wednesday evening, confirmed Boeing lost no sales or revenue at the expense of Bombardier's C Series and so was not materially injured. That would seem to undermine the basis for any further challenge by Boeing.

Bombardier is now working to finalize a deal struck last year with Airbus Group SE that will see the European giant take control of the C Series program. The partners expect to obtain all approvals this year.

BOMBARDIER (BBD.B) CLOSE: $3.66, UP 37¢

Associated Graphic

Commuters exit a Bombardier train operated by France's national railway company at the Saint-Lazare station in Paris on Thursday. Bombardier's rail business delivered a strong fourth quarter for the firm.

LUDOVIC MARIN/AFP/GETTY IMAGES


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