Bombardier CEO says bondholder’s claims a ‘bump in the road Bombardier CEO says bondholder’s claims a ‘bump in the road’
Nathan Denette/The Canadian Press
Bombardier Inc.’s chief executive officer says he’s confident the plane maker will push past its current debt covenant trouble relatively unscathed, but the company faces pressure on several other fronts as it tries to regain profitability after years of turmoil.
“We feel pretty good about the preliminary discussion we’ve been having with the bondholders” to resolve the issue, ric Martel told reporters on a conference call Thursday. “I will call it a little bump in the road. But it’s not going to distract us. We have a clear game plan on where we’re going. And we’re going to continue to execute that plan.”
Bombardier is locked in a dispute with an unidentified bondholder that claims its recent asset sales, including the divestiture of its train business to France’s Alstom SA, violated covenants on debt maturing in 2034. Analyst Dan Fong of Veritas called it “a shakedown” by the investor that clouds the company’s turnaround and could lead to a default event in a worst-case scenario.
Bombardier says it believes the allegations are without merit. But to fix the situation, the company is approaching a wide swath of investors holding eight separate bond issues asking them to approve changes to their covenants to clarify language stating that the asset sales are permitted and to waive any alleged default. Bondholders who consent to the changes will receive a consent payment from Bombardier worth $1.25 for every $1,000 of principal, except one series of debt due in 2026 that will be paid in Canadian dollars.
Creditors have until May 11 to agree. Mr. Martel declined to answer when asked if the company would consider increasing the consent fee or extending the deadline to cement more support. He said Bombardier’s bond and share prices have both held up since disclosure of the problem Monday, suggesting investors “feel very strongly about us being there for the long run.”
Mr. Martel and chief financial officer Bart Demosky are trying to stage a recovery for Bombardier that hinges on paying down debt, cutting costs and selling and servicing private jets. The company has become a single-business manufacturer focused on private aviation after selling its rail unit, its commercial aircraft assets and its plane parts-making division.
First-quarter financials reported Thursday suggest the effort is yielding results. Bombardier’s adjusted earnings before interest, taxes, depreciation and amortization jumped 43 per cent from the same quarter last year to US$123-million as it recorded a net loss from continuing operations of US$251-million, or 10 cents a share. Business jet revenue increased by 18 per cent to US$1.3-billion in the quarter.
Free cash flow usage, a metric closely watched by investors, improved by US$357-million year over year. Meanwhile, strong sales activity pushed the company’s book-to-bill, a measure of new orders against deliveries, above 1.0, according to the published results.
Bombardier said it expects demand for new jets to accelerate in the months ahead as economies reopen and the coronavirus pandemic leads more people to turn to private air travel. It reaffirmed previous forecasts to ship between 110 and 120 new jets this year.
Competitors, however, aren’t standing still. French rival Dassault Aviation on Thursday launched the Falcon 10X, a high-end, long-range, Rolls Royce engine-powered model it called a “flying penthouse.” The plane will compete with Bombardier’s flagship Global 7500 (list price: US$75-million) but won’t come to market for several more years.
Still, the new entrant signals a much more heated battle ahead at the high end of the corporate jet market, said Rolland Vincent, director of Jetnet IQ, a market intelligence service for business aviation. Gulfstream Aerospace is Bombardier’s main rival in the segment currently, with its G700.
“It’s quite a gauntlet Dassault has thrown down here,” Mr. Vincent said. “The game is afoot. We have three players at the top of the market. That’s a lot of choice for customers. They’re going to be able to play each of them off against each other so pricing is going to be challenging. I think it’s going to be hard to hold price lines.”
Legal challenges also continue to dog Bombardier as it faces deepening scrutiny over its past. The U.S. Department of Justice contacted Bombardier in February asking the company to communicate documents and information related to contracts and orders from the Garuda Indonesia airline dating back to 2011, Bombardier said in a regulatory filing Thursday.
An Indonesian court convicted Garuda’s former CEO and an associate in 2010 of corruption and money laundering in connection with five procurement processes, including the sale and lease of Bombardier CRJ1000 aircraft. Britain’s Serious Fraud Office has already opened an investigation into Bombardier over its former business dealings with Garuda.
No charges have been laid against Bombardier or any of its directors, officers or employees. The company has launched its own internal review into the matter and says it has found nothing unusual.