US airline filing.......Globe U.S. airline filing sends Bombardier scrambling
Finds taker for 16 of 45 jets ordered
By BRENT JANG
TRANSPORTATION REPORTER; With files from reporter Paul Waldie
Tuesday, September 14, 2004 - Page B1
Bombardier Inc. has found homes for 16 of 45 regional jets scheduled for delivery to US Airways Group Inc., as the plane maker scrambles to cope with the effects of the airline's insolvency on orders worth $1.2-billion.
Montreal-based Bombardier could be owed as much as $948-million (U.S.) by US Airways for "future aircraft commitments," says the airline's Chapter 11 filing for bankruptcy protection in U.S. Bankruptcy Court for the eastern district of Virginia.
Bombardier's is the second-largest unsecured claim against US Airways. Only one other company, Brazil's Empresa Brasileira de Aeronautica SA, has a larger claim against Arlington, Va.-based US Airways. Embraer's unsecured claim exceeds $1.46-billion.
Bombardier faces further turbulence as other U.S. carriers struggle amid fierce fare competition and high fuel prices, with one analyst warning yesterday that "the news could get worse."
Peter Rozenberg, an analyst with UBS Securities Canada Inc., said Bombardier has a backlog -- orders yet to be filled -- of 42 aircraft with troubled Delta Air Lines Inc. of Atlanta.
Bombardier's backlog at US Airways is 45 aircraft. Combined, US Airways and Delta represent 36 per cent of Bombardier's order book.
Bombardier spokesman John Paul Macdonald played down the effect of US Airways' troubles on the Montreal company, saying that 16 of the planes slated for delivery will find homes elsewhere, through aircraft lessor GE Capital Aviation Services. That helps Bombardier since GE will take responsibility for securing other customers to take delivery.
He said there shouldn't be any cause for alarm to see Bombardier listed as US Airways' second-largest unsecured creditor, saying it's "normal," given the big-ticket items of regional jets. "The US Airways' orders are not being cancelled."
US Airways isn't liquidating assets, so the backlog of 45 Bombardier jets isn't vanishing, but being stretched out over a longer time horizon than originally planned, Mr. Macdonald said.
"We are pro-actively managing risk," he said. "The long-term looks very good. As we know, we have an excellent product. It's just unfortunate with the situation of US Airways."
The original order placed by US Airways in May, 2003, was for 85 Bombardier jets. So far, Bombardier has delivered 40 aircraft from that order, and of those, 26 have been paid for while Bombardier provided interim financing for the remaining 14 planes.
As well, Mr. Macdonald said Bombardier has been careful to keep investors informed about possible changes to its delivery schedule, knowing that some U.S. carriers have been facing tight finances for many months.
In a research note, Mr. Rozenberg said Delta "may have to eventually file for Chapter 11 to conserve cash," posing a "further backlog risk" for Bombardier.
Standard & Poor's Ratings Services said yesterday that it had placed Bombardier on credit watch, with "negative implications."
The decision "reflects the continuing deterioration in the U.S. airline sector that could impair further Bombardier's ability to restore its profitability," S&P credit analyst Kenton Freitag said.
Another analyst, Richard Stoneman at Dundee Securities Corp., said in an interview that with US Airways filing for bankruptcy protection a second time, it's unclear which carrier will eventually take delivery of certain Bombardier-built aircraft.
Mr. Stoneman said the woes at US Airways are part of wide range of problems -- ranging from high jet fuel costs to discounted fares to restrictive union contracts -- dogging the airline industry since the terrorist attacks of Sept. 11, 2001.
While Bombardier has been hurt by lower demand for ritzy business jets, its long-term prospects look good with many commercial airlines turning to 70- to 120-seat regional jets, which carry many more passengers than business jets, Mr. Stoneman said.
US Airways' filing late Sunday for protection under Chapter 11 of the U.S. Bankruptcy Code marks the airline's second trip to bankruptcy court since 2002. In March, 2003, after slashing operating costs, it emerged from the first filing, only to slip back into financial trouble.
Even with the deferral in US Airways' orders, Bombardier expects to deliver nearly 325 aircraft -- with regional jets accounting for more than 70 per cent of those orders -- for the fiscal year ending Jan. 31, 2005. That's about the same total as in the previous fiscal year.
Bombardier's class B shares, which have dropped more than 85 per cent over the past three years, gained 13 cents (Canadian) to close at $2.98 yesterday on the Toronto Stock Exchange.
Investors have been anticipating a court filing by US Airways, and the focus now is on whether Bombardier is in a position to benefit from overall growth in the market for regional jets over the next decade, analysts say.
Embraer and Bombardier -- aircraft makers that have been in heated battles to supply regional jets to the world's airlines -- are listed in court documents as having by far the largest claims. Units of GE Capital Corp. have claims of nearly $150-million (U.S.), ranking them as the third-largest unsecured creditor.
While the 10 largest creditors have unsecured claims each surpassing $4-million, the amounts drop off after that. Aircraft engine maker Pratt & Whitney Canada Inc. is 21st on the list of the 30 largest unsecured claims. The Longueuil, Que.-based company has a $1.2-million claim for "accounts payable." Several U.S. airports have multimillion-dollar claims.
Air Canada, which is slated to emerge from bankruptcy protection in Canada under the Companies' Creditors Arrangement Act on Sept. 30, said in its restructuring plan that it will be ordering regional jets from both Embraer and Bombardier, part of the airline's attempt to gain greater flexibility in flight scheduling.
One analyst said one option for GE would be to examine the merits of delivering some Bombardier-built jets, previously destined for US Airways, to Air Canada instead.