Wednesday, January 13, 2016

Bombardier Cancels $1.75 Billion of Jet Orders in Sales Shift

Bombardier Inc. scrapped $1.75 billion of business-aircraft orders, saying it anticipates making more money by reselling them directly to customers.

The Canadian plane-maker also said it was ending a four-decade relationship with distributor TAG Aeronautics as part of a change in its sales strategy.

Bombardier will book a $278 million pretax charge in the fourth quarter due to its moves to cut out the middleman standing between itself and aircraft buyers.

Bombardier is revamping its business-jet sales effort as the company’s finances have been strained by its $5.4 billion program for C Series commercial planes. The development of its largest-ever model is more than two years late and at least $2 billion over budget, and Bombardier has been seeking more government aid to right itself.

“The cancellation of these orders is a Bombardier-driven action to restructure
the commercial agreements,” Mark Masluch, a Bombardier spokesman, said in a telephone interview.

“The outcome of this is that we do expect to resell these aircraft and positions at a higher margin.”

Bombardier announced plans in May to cut about 1,750 jobs at the business aircraft unit due to a slowdown in production of the Global 5000 and 6000 models. Most of the jobs have already been eliminated. The company earlier shed 1,000 jobs as it halted work on the Learjet 85 program, which was canceled in October.

List Prices

The cancellations include 24 firm orders and 30 optional ones, according to a statement issued Wednesday by Montreal-based Bombardier. The $1.75 billion value refers to 2015 list prices, though customers typically negotiate discounts.

Ending the partnership with TAG means Bombardier will take over sole responsibility for sales of new Challenger and Global aircraft in 21 Middle Eastern and North African countries.

About $133 million of the $278 million charge is in cash -- with $50 million having been paid in the fourth quarter, and the rest slated to be paid this year, Bombardier said.

Bombardier Business Aircraft, the company’s most profitable unit, had a backlog of future orders of $20.3 billion as of Sept. 30. It booked revenue of $1.56 billion in the third quarter of 2015, the most recent period for which Bombardier has published results.

Fourth-quarter earnings will be released Feb. 18, Bombardier said Wednesday.

(Frederic Tomesco - Bloomberg Business) 

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