BRIAN DUNN / MONTREAL
Manufacturer risks running short of money without divesting, fund-raising or state aid
Bombardier may have to sell assets or raise new equity to meet near-term cashflow requirements, according to two Canadian financial reports. The reports followthe 17 January downgrade of Bombardier's long-term debt rating by Moody's Investors Service. The transport giant is also holding talks with the Quebec government about loan guarantees.
"An equity issue or sale of the Recreational Products unit may now be more likely," says a report from RBC Capital Markets after Moody's warning that if Bombardier falls short of its fiscal 2003 cashflow target of C$1.3 billion ($845 million), it could result in a new downgrade to just above junk status.
A report by Canaccord Capital says Bombardier will probably downsize its capital financing unit by half to about C$5 billion through asset sales. The report adds that an equity issue or the sale of the Recreational Products unit would be difficult before releasing fourth-quarter results in March.
The downgrade was overdue and reflects a more cautious outlook for the North American economy and increasing concerns about the airline industry, according to the Canaccord report. The downgrade may also have been prompted by the recent appointment of former CN Rail head Paul Tellier to the position of company chief executive, the report adds.
Meanwhile, Bombardier is hoping to get increased backing - reportedly up to C$3 billion - from the Quebec government, which has provided C$976 million in loan guarantees to Bombardier customers since 1996.
"We are currently studying with Bombardier the possibility of increasing the loan guarantee programme," says a government official. "The amount will depend on how many years the guarantees will be for."
Quebec's financial assistance is small compared with Ottawa's Export Development Canada, which has financed about 40% of Bombardier's aircraft sales over the past few years with loan guarantees to the manufacturer's customers worth close to C$8 billion.
Source: Flight International
