Bombardier moves to boost margins; cancels bizjet orders, sales tie-up

Canadian planemaker Bombardier Inc said on Wednesday it was ending a decades-long business jets sales tie-up with a partner in the Middle East and separately cancelling two dozen firm orders for its larger Global business jets, as it moves to improve long-term profitability.

The Montreal-based company’s move to cancel 24 firm orders, along with an additional cancellation of 30 optional orders for its larger Global jets comes as a bit of a surprise given the company’s recent woes.

The embattled plane and train maker said, however, that it is confident that it could resell those business jet order slots at improved margins.

The Canadian company has seen its share price tumble more than 72 percent in the last two years, as its long-delayed and billions of dollars over-budget CSeries jet program has left the company shuddering under a massive debt load.

The initial variant of the CSeries narrow-body commercial jet just won certification from Canadian regulators last month, shortly after the government in Bombardier’s home province of Quebec vowed to make a $1 billion cash infusion in return for a nearly 50 percent stake in the CSeries program.

In November, Bombardier also agreed to sell a 30 percent stake in its rail business to Quebec’s public pension fund manager for $1.5 billion, in a bid to bolster its balance sheet.

Bombardier said on Wednesday it would start selling directly to customers in the Middle East and North Africa and that it has ended a tie-up with TAG Aeronautics, the long-time exclusive sales representative for its Challenger and Global business jets in the region.

Bombardier will record charges of $278 million in the fourth quarter on the move and separate cancellation of the business jet purchase orders, the company said.

“Longer-term, this announcement should be positive,” noted Desjardins analyst Benoit Poirier, adding that it would help the segment reach an 8 percent to 10 percent EBIT (earnings before interest and taxes) margin range by 2020.

The company said it plans to focus on interacting directly with its customers as part of a change in its strategic business plan in the Middle East and Africa.

“Bombardier is firmly committed to the Middle East and Africa, and our in-region sales team is well equipped to ensure all customers find the ideal business jet for their needs,” said Bombardier’s business jet head David Coleal, in a statement.

(Reporting by Euan Rocha and Amrutha Gayathri in Bengaluru; Editing by Ted Kerr, Savio D’Souza and Bernard Orr)

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