Bombardier sells $ 900-million in non-core assets, slashes 5,000 jobs

Bombardier Inc. is selling its Q400 turboprop business to west coast niche plane maker Viking Air as Canada's biggest aerospace manufacturer of non-core assets and builds a future cemented on luxury jets and trains.

Montreal-based Bombardier Announces the Deal Thursday, August 14, 2009 with CAE Inc. and cutting 5,000 jobs over the next 12 to 18 months. Net proceeds from the two transactions are expected to be about $ 900-million, Bombardier said.

"With today's announcements, we have set in motion the following necessary actions to unleash the full potential of the Bombardier portfolio," Bombardier chief executive Alain Bellemare said. "We will continue to be proactive in focusing and streamlining the organization."

Mr. Bellemare has brought back Bombardier from the brink of bankruptcy after development costs C Series commercial airliner program. It has already cut down on the size of the market and has been reduced to US $ 8-billion. Mr. Bellemare said, "The sale of the turboprop and training businesses increases the company's financial flexibility.

The agreement with Viking marks the second significant divestiture for Bombardier this year following a controlling stake in the C Series Airbus SE program in July. Bombardier concluded it could not be more efficient. Airbus has since rebaptized the plane A220.

Mr. Bellemare said, "The Q400 and the Canadair CRJ regional jet. "We're not thinking about exiting" those businesses, he said. "We're thinking about growing."

Why Bombardier management has changed its mind. Still, there had been whispers behind the scenes that the officials of Bombardier and Viking had been in on-again, off-again talks for months. Viking parent company Longview Capital Aviation is making the acquisition. The deal also includes the rights of de Havilland trademark.

The order backlog for the Q400 stood at 56 planes as of July 1.

This is a big deal for Viking. Historically, the company has been a willing taker of Bombardier's unwanted assets, most recently buying Bombardier's CL-415 waterbomber program. The Victoria, BC-based company has developed a plan for resurrecting moribund plane. But controlling the Q400 is at a scale unlike anything it has done before.

Bombardier said it achieved its best quarterly performance in the third quarter of Sept.30, tallying a profit of US $ 149-million gold 4 cents per share on revenue of US $ 3.6-billion. Earnings before interest and taxes, not including special items, rose 48 per cent to US $ 271-million. Free cash usage for the quarter was US $ 370-million. The company still expects to report break-even free cash flow for the full year, plus or minus US $ 150-million.

The company launched a company-wide restructuring effort, which includes "flattening management" and further cutting costs. It expects to save US $ 250-million with the moves by the time they are not implemented in 2021. It expects to record a restructuring charge of the same amount.

The streamlining efforts also include two main actions touching its engineering department. First, Bombardier intends to rightsize its central aerospace engineering team and move key personnel to other parts of the business, with the largest group moving to private aircraft to work on future aircraft development programs. Second, the company said it will establish a new advanced technologies office to focus on systems design and engineering.

The company reaffirmed its financial targets for 2020.

Bombardier shares have dropped to 40 per cent from a 52-week peak in July as investors about the company's ability to handle future debt payments among other things. Today's actions can reassure the market that management continues to take steps to make a successful leaner money-maker, even if the hardest work has been completed.