ALEXANDER CAMPBELL / LONDON
While suspensions of the Dash 8 lines may be temporary, Bombardier's other two actions will not be reversed when the market recovers. Almost 2,000 employees have been laid off - 6% of Bombardier Aerospace's workforce - at a cost of C$45 million ($29 million) this year. "These jobs...will not be resumed with a recovery," says chief executive Robert Brown, who says the redundancies and other cost-saving measures will save C$200 million a year.
This is the second round of Bombardier lay-offs since 11 September last year. Bombardier, Embraer and other business aircraft manufacturers all announced redundancies after the terrorist attacks.
Bombardier will wind down its portfolio of over 100 business jets. "We are halving our debt requirements," says Brown. "There will be no dumping: this will be done in an orderly fashion." The portfolio includes operating leases on 65 used aircraft and customer financing for 40 new aircraft.
The used aircraft have generally been sold on at break-even prices, having been bought from customers to persuade them to buy new aircraft. But income from customer financing will be lost: "Bombardier Capital will make a smaller contribution than in the past," says Brown.
But Bombardier may find it difficult to sell its exposure - the business jet market is sluggish and investors will not want to get involved. Although Brown "believes it will attract market interest," aerospace debt analyst Tassos Philippakos of Moody's is less sanguine.
"The reason for the sale is to enhance flexibility by unloading C$5 billion of exposure. It is good news, as long as it can be done at no loss...but it will be a challenge for them. I think it is possible, but it will be difficult," says Philippakos.
Other manufacturers are unlikely to follow suit and swamp the market with risk. "Raytheon has been reducing its exposure and we will probably see it [do the same] in future. I don't believe the others will," says Philippakos.
Nor will cutting customer financing for business jets put Bombardier at a disadvantage. Standard & Poor's analyst Phil Baggaley says: "Corporate jets tend to attract financing from other parties outside the manufacturers. The problem is lack of demand. I wouldn't see the pullout as a severe disadvantage." The opposite is true with regional jets, says Baggaley. "Not many lessors offer regional jets...the buck stops with manufacturers and export credit agencies for financing RJ purchases." He says this explains why Bombardier has decided to maintain customer interim financing on regional jets.
Source: Flight International
