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Bombardier value guarantees, business jets in focus at investor day

Published 2016-12-15, 07:00 a/m
© Reuters.  Bombardier value guarantees, business jets in focus at investor day
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By Allison Lampert

NEW YORK, Dec 15 (Reuters) - Bombardier Inc BBDb.TO investors will be looking for more information on the cost of value guarantees for older jets and forecasts for the Canadian plane and train maker's business jet unit at an investor day in New York on Thursday.

The event comes two days after U.S. airline Skywest Inc SKYW.O said it had agreed to terminate a residual value guarantee with Bombardier covering 76 CRJ200 planes. SkyWest said Bombardier had agreed to pay it $90 million by January 2017.

Residual value guarantees cover some of plane buyers' losses if the value of their aircraft drops below a certain threshold, a potential liability and a drag on cash flow for Bombardier as older planes like the CRJ200 go out of service.

"We expect management to provide additional details with respect to the termination agreement," AltaCorp analyst Chris Murray said in a note to clients.

Bombardier disclosed early this year that its maximum potential exposure from residual value guarantees was $991 million over four years starting Dec. 31, but it is not clear how much that potential liability could affect cash flow.

"RVG payments are embedded in the 2016 guidance and will be in future guidance," said Bombardier spokesman Mike Nadolski.

One factor that could improve cash flow is increased demand for the company's business jets, and analysts and investors will be looking for new guidance on sales on Thursday. The new ultra-long-range Global 7000 jet, said by the company to have a strong order book, is expected to play a key part in Bombardier's five-year turnaround plan.

Bombardier, which considered bankruptcy protection at one point last year, now aims to break even on free cash flow in 2018 and on its new CSeries program of narrow-body commercial jets in 2020.

On Wednesday, Bombardier said it expects its full-year 2017 consolidated revenue to grow in the low single digits year-over-year, and reaffirmed its guidance for 2016. of the company's largest business jets, which slowed this year to match weaker market demand for corporate planes, is expected to pick up slightly in 2017, a source familiar with the matter said, although a broader industry rebound is not expected.

Production of Bombardier's Global 5000 and 6000 jets is expected to rise slightly from one in 10 days to one in seven days next year, said the source, who spoke on condition of anonymity because the company does not disclose such figures.

A Bombardier business jets spokesman declined to disclose global production rates for competitive reasons.

Some aviation and financial analysts expressed skepticism about the company's ability to meet its 2018 cash flow goal because of soft industrywide demand for corporate jets, and initial production costs and discounts for the CSeries.

"I admire the turnaround that's occurring but I think the break-even part will take place later than expected," said Rolland Vincent, president of consulting firm Rolland Vincent Associates.

(Writing by Allison Martell in Toronto; Editing by Jonathan Oatis)

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