A steady flow of taxpayer dollars isn’t stopping Bombardier (BBD-B.TO) from eliminating more jobs. It plans to cut about 5,000 over the next year or so. The downsizing is expected to save the Montreal-based company $250 million by 2021. Details were revealed in the company’s latest earnings report.
“Once again it appears the government was bamboozled,” Benj Gallander of Contra The Heard Investment Letter told Yahoo Finance Canada. “Unfortunately the norm is to look at the short term in many ways and election prospects as compared to what will work in the long run.”
In what appears to be a shift in focus on its rail and business jet divisions, Bombardier is also selling what it calls non-core assets. Longview Aviation Capital is buying the Q Series turboprop aircraft program. CAE is buying Bombardier’s training services. Bombardier says the sales will bring in $900 million.
“With our heavy investment cycle now completed, we continue to make solid progress executing our turnaround plan,” says Bombardier CEO Alain Bellemare. “With today’s announcements we have set in motion the next round of actions necessary to unleash the full potential of the Bombardier portfolio.”
Bombardier’s stock fell sharply in early trading, despite the cost-cutting efforts. The plunge was severe enough to trigger a trading halt. The amount of cash on hand being well below estimates was the likely culprit.
Gallander has bet on Bombardier in the past, but concerns about debt have kept him away lately. He says the sale of assets is significant.
“It seems that in May this was not on the table. That is a major managerial shift. Couple this with the sale of a controlling stake in the C Series to Airbus and these are very sad days for the Canadian economy,” says Gallander. “I think that it can be compared on a smaller level to the shutdown of the Avro Arrow, a day that in the Canadian aviation industry was known as Black Friday with a loss of almost 30,000 jobs.”
A part of doing business
Despite the negative reaction on Bay street, McGill’s Karl Moore told Yahoo Finance Canada today’s announcements are sound business moves.
“Alain Bellemare has to decide where in their various business lines to invest their CAPEX, clearly the future is brighter in the Business Jets and Transportation Divisions than in the Q400 or the pilot training,” says Moore.
The job cuts announcement sparked anger among politicians. Interim Parti Québécois leader Pascal Bérubé called the announcement catastrophic for employment in Quebec and called on Bombardier execs to give back public money.
The union representing 19,000 workers says he’s worried about the future of the aircraft industry.
“It’s very bad news,” says Renaud Gagné, director of Unifor’s Quebec division. “It sends a troubling message for the future of the industry at the same time the sector is suffering from a labour shortage.”
But Karl Moore was not surprised by the announcement.
“The layoffs are largely as a result of the 7000 development being done and so without new products to work on these jobs are simply not necessary anymore. This is simply part of the natural ebb and flow of aircraft development. I suspect these engineers would have seen this coming for some time,” says Moore.
Despite today’s turbulence, Bombardier expects sales to grow by 10 per cent next year, fueled by its Global 7500 business jet.