Bombardier Sees Shift to `Growth Cycle’ on Rail, New Luxury Jet

(Bloomberg) -- Bombardier Inc., which has been reeling from a weaker cash-flow forecast and a heavy debt load, says it's about to transition to a new phase of sales growth.

The Global 7500 luxury jet, which will debut in the coming days, will add at least $2.5 billion a year in revenue by 2020, Bombardier said in a presentation Thursday. The company is also seeking a $1 billion revenue boost from new rail contracts and a $750 million increase from providing more parts and services.

“Today, Bombardier is a much stronger company,” Chief Executive Officer Alain Bellemare said in a meeting with analysts and investors in New York, surveying the results of a five-year turnaround he began in 2015. “Our heavy investment cycle is now complete and we're now transitioning to a growth cycle.''

Bellemare is trying to regain investor confidence after a disappointing cash-flow forecast last month spurred the biggest rout among Canadian industrial companies. As he pitches investors on a brighter future for the company's rail and private-jet divisions, he's also pulling Bombardier back from its longstanding focus on commercial aircraft.

Bombardier's Class B shares fell less than 1 percent to C$2.18 at the close in Toronto, paring steep declines earlier in the session amid a broad market sell-off. Bombardier has tumbled 28 percent this year, compared with a 1.9 percent advance of a Standard & Poor's index of Canadian industrial companies.

Regulatory Probe

Bellemare spent the beginning of his presentation defending the company's executive stock-sale plan, which is under investigation by Quebec's securities regulator. The province's Autorite des Marches Financiers ordered the suspension of such dispositions last month after Bombardier's worsening outlook spurred a one-day drop of almost 25 percent -- the most in almost four years.

The CEO said he still holds most of the shares acquired as part of the long-term program.

“We did everything the right way,” Bellemare said. The executive team is “fully committed to the turnaround and long-term success of Bombardier.”

There will be less investment and more cash flow during the second half of the planned turnaround, Bellemare said. With development work on new jet programs now completed, Bombardier said it's earmarking about $800 million next year for “sustainable” capital expenditures. That's about half the annual average of the past five years.

Rail Delays

Faced with delays on some rail contracts, Bombardier invested about $100 million to increase output by about 20 percent this year, said Laurent Troger, who runs the train unit. Bombardier is confident it will recover the working capital next year as deliveries accelerate on the contracts, which include railcars for London and subway cars for New York, Troger said.

Business-jet deliveries will climb at least 11 percent next year following the debut of the Global 7500, Montreal-based Bombardier said in a statement. The aircraft, carrying a list price of $73 million and able to fly nonstop from New York to Dubai, is the company's biggest business plane. It will compete with General Dynamics Corp.'s Gulfstream G650.

Bombardier plans to ship 15 to 20 of the Global 7500 planes next year, with a majority of deliveries occurring in the second half, said David Coleal, who runs the business-jet unit. Deliveries will rise to as many as 40 in 2020, he said.

‘Operational Growth'

For the company as a whole, Bombardier reaffirmed its month-old forecast for 2019 sales to climb about 10 percent to at least $18 billion. The manufacturer expects to break even on a cash-flow basis, plus or minus $250 million. That includes $250 million for working capital contingencies in business aircraft as the company boosts production of the Global 7500, Di Bert said.

The company also confirmed its 2020 financial objectives, which include revenue of at least $20 billion and free cash flow of $750 million to $1 billion. Investors and analysts focus on cash flow because of the company's need to pay interest on its debt, which was about $9.5 billion on an adjusted basis on Sept. 30.

Bombardier ceded control this year of the C Series to Airbus SE, which renamed the fledgling aircraft the A220. Bellemare is also selling Bombardier's turboprop program and considering options for its unprofitable regional jets, while looking to the rail and business-plane divisions for sales growth.

The company “is once again poised to show solid operational growth on the back of its multiyear turnaround plan,” Stephen Trent, a Citigroup Inc. analyst, said in a note to clients. He recommends buying the stock.

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, Susan Warren

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