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 unloads non-core assets and builds a future cemented increasingly on luxury jets and trains.

Montreal-based Bombardier announced the deal Thursday in tandem with third quarter earnings, part of a series of measures that also includes the sale of its private aircraft flight training activities to 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.

Bombardier said most of the cuts will come in its aerospace business. Approximately 2,500 jobs will be lost in Quebec and 500 in Ontario. The rest of the cuts will come in other operations worldwide.

“With today’s announcements, we have set in motion the next round of actions necessary 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 soared at its C Series commercial airliner program. He has already cut thousands of jobs and reorganized the rail business in a bid to rebuild profitability and eventually lower a debt that stands at about US$8-billion. The sale of the turboprop and training businesses increase the company’s financial flexibility as it starts deleveraging, Mr. Bellemare said.

The agreement with Viking marks the second significant divestiture for Bombardier this year following the sale of a controlling stake in the C Series program to Airbus SE in July. Bombardier concluded it could not go it alone against the industry’s narrowbody jet makers and that Airbus’s vast resources could make the C Series more successful. Airbus has since rebaptized the plane the A220.

Mr. Bellemare said as recently as May that the company was committed to its two remaining commercial airliner programs, 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 changed its mind was not immediately clear. Still, there had been whispers behind the scenes that officials from Bombardier and Viking had been in on-again, off-again talks for months. Viking parent company Longview Aviation Capital is making the acquisition. The deal also includes rights to the de Havilland trademark.

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

The Q400, while technologically-sound, is outsold by rival turboprop maker ATR globally. Bombardier had been exploring ways to lower production costs to increase profitability but concluded that selling was a better option. It is also reviewing options for the CRJ.

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, B.C.-based company has developed a flair for resurrecting moribund plane programs. But controlling the Q400 is at a scale unlike anything it has done before.

Bombardier said it achieved its best quarterly performance in years in the third quarter ended Sept.30, tallying a profit of US$149-million or 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’re all 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 about 40 per cent from a 52-week peak in July as investors fret about the company’s ability to handle future debt payments among other things. Today’s actions could reassure the market that management continues to take dramatic steps to make company a leaner money-maker, even if the toughest work has been completed.