Canadian plane and train maker Bombardier Inc has agreed to sell its Toronto aircraft assembly site to a pension fund as part of efforts to raise extra cash under a five-year recovery plan.
The company, whose quarterly results on Thursday beat estimates for profit by a cent, will make US$635 million ($816 million) gross from the sale to Canada’s Public Sector Pension Investment Board (PSP Investments).
The sale, however, of a facility Bombardier has owned for more than a quarter century, raises questions about the future of its commercial aircraft programs, especially its Q400 turboprop planes, after the company agreed to give a majority stake in its flagship CSeries jet to European planemaker Airbus.
Chief Executive Alain Bellemare said the deal would allow the company to “monetize an underutilized asset, further streamline and optimize our business aircraft operations, and will support further economic development and job growth in the Greater Toronto area.
“Today, we only use about 10 percent of a 370-acre site at Downsview and bear the entire cost of operating a 7,000-foot runway,” he said.
Bombardier has owned the Downsview site in northern Toronto since the early 1990s, when it bought Boeing’s commuter jets division. It is now one of four final assembly sites it uses.
The company had said earlier this year it was looking for buyers for the sprawling property, where it assembles the Q400 and several business jets. It has also repeatedly said it will keep its turboprop business.
The train and plane maker said it would assemble business jets at a leased facility at Toronto’s Pearson Airport, and would continue leasing space at the Toronto site for three years, with options to renew for two more.
Jerry Dias, president of the Unifor union which represents workers who assemble the Q400 and Global 7000 plane in Toronto said on Thursday the deal means Bombardier will keep the two programs in Canada.
“My biggest concern all along has been the Q-400 and the Global program,” he said by phone. “Those two issues have been resolved. We are keeping all of it.”
Selling the site is expected to add US$550 million to the company’s cash reserves and the first quarter results showed revenue increasing in three of Bombardier’s four businesses, led by a 21 percent rise in its rail unit.
But the company’s loss-making commercial aircraft segment, which includes the CSeries, reported a 12 percent drop in revenue and Bombardier used US$721 million of its available cash in the quarter—more than last year.
“I assume they will be utilizing the proceeds (of the sale) to reduce debt at an accelerated timeframe,” William Blair analyst Nicholas Heymann said.
The Q400, with a backlog of 50 planes, has about 25 percent of the global market in small commercial planes and comes second to European rival ATR, the world’s largest maker of turboprops.
In a memo to staff this week seen by Reuters, Bellemare said the company’s commercial aircraft president would stay on to lead its regional aircraft business once the deal with Airbus for the CSeries is completed, with a new leadership team and organizational structure to be announced in the coming weeks.
Separately on Thursday, Bombardier said client American Airlines Group Inc had placed an order for 15 new CRJ900 regional jets worth US$719 million. The airline expects to take delivery of the first aircraft in the second quarter of 2019.
Bombardier said it is on track to achieve free cash flow break-even for the full year.
“Cash flow for this quarter wasn’t strong but if we hear that they are on track to break even and next year begin to reduce debt, I think the stock should do well. Clearly people are anxious to know what’s next for Bombardier,” Heymann said.
(Reporting by Yashaswini Swamynathan in Bengaluru and Allison Lampert in Montréal, writing by Nivedita Bhattacharjee; editing by Patrick Graham)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Bombardier Inc