Red Alert The Quebec government invested US$1 billion in the CSeries in exchange for a 49.5 per cent stake in the program, while the province’s pension fund bought a 30 per cent stake in the company’s train-making business for US$1.5 billion.
The federal government is also mulling over a request for additional financial aid, but no decision has been made.
These investments will help boost Bombardier’s liquidity position to US$6.2 billion, according to Spracklin, but the company continues to burn through cash as it ramps up production of the CSeries. At the same time, a slowdown in demand for business jets is weighing on revenue and margins, and the company hasn’t booked a new firm order for the CSeries in almost a year and a half.
Macquarie Research analyst Konark Gupta said his firm’s proprietary research indicates that Bombardier delivered a total of 75 aircraft in the fourth quarter, well below the company’s guidance of 99 deliveries.
“If our tracking proves to be accurate, there could be material downside risk to our (fourth quarter) revenue and EBIT margin estimates,” Gupta said in a note to clients.
The company also cancelled 24 business jet orders in the quarter, worth US$1.75 billion, in the hope of reselling them at a higher margin.
For investors, this could be a red alert as far as in-production aircraft is concerned.
As a result, Gupta expects that Bombardier recorded zero net aircraft orders in the fourth quarter, causing its backlog for in-production aircraft to fall 34 per cent “even in the best-case scenario.”
“For investors, this could be a red alert as far as in-production aircraft is concerned,” he wrote.
Possibly the only tailwind in the quarter will come from the weak loonie, according to National Bank analyst Cameron Doerksen. Since the company’s aerospace revenue is mainly in U.S. dollars and its costs are mostly in Canadian dollars, “a weak Canadian dollar is clearly positive,” he wrote.
Doersken estimates that Bombardier’s aerospace costs will fall by US$288 million in 2016 if the current exchange rate holds.
However, until the company can book more orders the share price will continue to languish, Spracklin said.
“Bombardier shares continue to be weighed down due to the lack of visibility — both in terms of end-market demand and strategic direction of the company,” Spracklin wrote.
“This has created a disconnect between the current share price and the fundamental value of Bombardier’s base business.”