MonTREAL – Bombardier has pushed back the first flight of its new CSeries aircraft by six months and announced that 1,200 railway employees will be cut across its global network next year as a result of the closure of a plant in Germany.
The Montreal-based rail equipment and aircraft manufacturer said the closure of its plant in Aachen, Germany, will affect 350 direct employees and 800 contract and other workers across its worldwide network of 36,000.
Details are still being worked out, and it expects to take a charge up of to US$150 million in the fourth quarter.
Chief executive Pierre Beaudoin said Wednesday that the plant closure and job cuts will “further improve our competitiveness and cost structure.”
The announcement came in Bombardiers third-quarter financial report, which showed the rail division continues to face weak results. Bombardier also acknowledged a widely expected delay in the first flight of the new CSeries commercial jet until the first half of 2013.
Bombardiers net income in the three months ended Sept. 30 rose to US$212 million but its revenues came in lighter than analysts had expected as weakness at its rail equipment division continued.
The Montreal-based companys revenue slipped to US$4.3 billion, down about $300 million from the third quarter of 2011, missing analysts expectations. Most of the decline was from Bombardier Transportation while revenue at Bombardier Aerospace fell slightly.
The companys net income was equal to 12 cents per share, beating analysts expectations, and compares with US$192 million or 11 cents per share a year earlier.
Bombardier had been expected to earn 10 cents per share in fully reported and adjusted profits on US$4.67 billion of revenues in the third quarter, according to analysts polled by Thomson Reuters.
The company, which is gearing up to build the next-generation CSeries commercial jets, said it now expects the plane to have its first flight before the end of next June.
Beaudoin said the CSeries program is making “good progress” but needed more time to address challenges faced by suppliers.
“Since the beginning of the year weve made substantial headway and have met a significant number of milestones and over the last few months we used the momentum gained with our suppliers to reach a fully harmonized schedule which everyone is committed to,” he said during a conference call.
Entry into service for the smaller aircraft model has been pushed back to June 2014. Delivery of the larger model remains unchanged for the end of 2014 because it has common parts with the CS100.
“The future of Bombardier is bright and the next year will be exciting as we start seeing our products in development come to life,” Beaudoin told analysts.
Revenue at Bombardier Aerospace was US$2.26 billion, compared with US$2.30 billion a year earlier. Revenue at Bombardier Transportation, was $2.07 billion – down from $2.32 billion a year earlier.
Bombardiers backlog of orders at the end of September was US$26.1 billion, up 18.6 per cent from the end of 2011.
Cameron Doerksen of National Bank Financial said the CSeries delay was longer than had been expected, especially given the positive progress reports in recent weeks.
“We dont think the delivery delay will lead to order cancellations, but it seems unlikely that Bombardier will generate any CSeries orders before there is more certainty on the development timeline,” he wrote in a report.
He estimates the delay could cost Bombardier about $500 million, but with $3.5 billion in liquidity he doesnt have any balance sheet concerns.
Doerksen said investors will be skeptical about the program until the plane actually flies, although he doesnt think a six-month delay will hurt the CSeries in the long run given that Airbus and Boeing both experienced much longer delays with little impact on orders.
“We think a June 2014 target is realistic and achievable, but Bombardiers credibility will take a hit and we believe that the market will be skeptical of the schedule until the plane actually flies,” he added.
He said Bombardiers share price will remain depressed until there is more certainty that the first flight is achievable.
Bombardier also faces strikes on two fronts. Workers at the Learjet facility in Wichita, Kan., are off the job for a fifth week. More than 330 railway workers at the La Pocatiere, Que., plant walked off the job last week over outsourcing, pensions and wages.
On the Toronto Stock Exchange, Bombardiers shares dropped more than four per cent, losing 15 cents at C$3.46 in morning trading.
