Bombardier Gains From Toronto Land Boom in $635 Million Deal

(Bloomberg) -- Bombardier Inc.'s drive to bolster its cash reserves is getting a lift from the booming real-estate market in Canada's biggest city.

The maker of planes and trains agreed to sell its Downsview factory in Toronto to Canada's Public Sector Pension Investment Board for about $635 million. The transaction is expected to close in the second quarter, increasing cash by more than $550 million after costs, Bombardier said in a statement Thursday as it reported earnings.

The deal buoys Chief Executive Officer Alain Bellemare's goal of fortifying Bombardier's balance sheet, which is saddled with about $9 billion of debt from pricey development programs for the C Series airliner and the Global 7000 business jet. Bombardier raised C$638.4 million ($498 million) in a share offering in March, taking advantage of this year's biggest stock gain among Canadian industrial companies.

The Downsview sale “further improves Bombardier's liquidity position,” Kevin Chiang, a CIBC World Markets analyst, said in a note to clients. “We continue to see the company execute against its long-term strategy, further de-risking its operations and balance sheet.”

Pearson Airport

Bombardier will continue to operate from Downsview for as many as three years after the land sale closes, with options for two one-year extensions.

Production will be moved to a 38-acre site at Toronto Pearson International Airport in about three years, Bellemare said on a conference call with analysts. The company plans to open a final assembly plant for its Global business jets at Pearson and hasn't decided where to build the Q400 turboprop, which is currently made at Downsview.

Bombardier said in January that it had begun reviewing options for Downsview because the company uses only about 10 percent of the 375-acre site and bears the entire cost of operating a 7,000-feet runway. Cowen & Co. analyst Cai von Rumohr said in February that Downsview could fetch as much as $1 billion.

“This bolsters liquidity and allows Bombardier to rationalize production footprint, but the net proceeds look below some estimates,” he said in a note to clients Thursday.

Bellemare is about halfway through a five-year turnaround plan designed to boost profitability and cash flow. The CEO is targeting a debut later this year of the Global 7000 after having shored up liquidity, cut jobs and struck a partnership in which Airbus SE will take control of the C Series. Bombardier said it now expects the venture to close by the end of next month. The companies originally targeted a closing in the second half of the year.

Surprise Profit

Bombardier reported an adjusted profit of 1 cent a share in the first quarter. Analysts had predicted the company would break even, according to the average of estimates compiled by Bloomberg. Sales climbed 12 percent to $4.03 billion, compared with expectations of $3.88 billion.

The results signal “a constructive start to the year,” Fadi Chamoun, an analyst at BMO Capital Markets in Toronto, said in a note to clients. He cited “encouraging signs of pick-up in demand” in business aviation.

Bombardier booked 31 orders for private jets in the quarter, two more than in the same period a year earlier.

The Montreal-based planemaker also said it reached an agreement with American Airlines Group Inc. to sell 15 of its CRJ900 regional jets, an order with a list value of $719 million before customary discounts. American also took an option to buy 15 more.

Break-Even Forecast

Free cash flow usage rose 22 percent in the first quarter to $721 million, while analysts estimated $599 million. Earnings before interest, taxes and special items climbed 16 percent to $201 million. Analysts had predicted $173 million.

For all of 2018, Bombardier continues to expect to break even on a cash flow basis, plus or minus $150 million, according to a slide presentation posted on the company's website.

Bombardier will burn less cash this quarter than in the first and improve further still in the third quarter, Chief Financial Officer John Di Bert said on the call. Earnings will improve as the company deconsolidates results of the C Series program, which is unprofitable, he said.

Bombardier's widely traded Class B shares climbed 1 percent to C$3.97 at 10:13 a.m. in Toronto. The stock has surged 30 percent this year through Wednesday, while Canada's benchmark S&P/TSX Composite Index slumped 3.6 percent.

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson, Susan Warren

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