Bombardier Inc’s aircraft orders likely fell short in fourth quarter, analysts say

Bombardier Inc.’s fourth-quarter answers are unlikely to provide much comfort to investors still hanging on after the shares’ plunge into penny-stock territory recently.

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Analysts believe the organization could report a “significant” decline in year-over-year aircraft deliveries and net orders if this releases earnings on Wednesday, missing its own guidance because it struggles with a weak marketplace for business jets as well as an ongoing order drought because of its CSeries jetliner.

And Bombardier’s outlook for 2016 isn’t likely to be much better. The company acknowledged at its investor day in November that this year will be a “transition year,” with lower revenue and earnings as the company begins an extensive cost-cutting program.

As an effect, the business’s liquidity levels is going to be “the key metric for that quarter,” RBC analyst Walter Spracklin said in a recent note to clients.

Since it last reported earnings, Bombardier has secured two cash injections which will bolster its balance sheet as it struggles to find buyers for the beleaguered CSeries.

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The Quebec government invested US$1 billion in the CSeries in exchange for a 49.5 percent stake within the program, while the province’s pension fund purchased a 30 percent stake in the company’s train-making business for US$1.5 billion.



The federal government is also mulling over a request for additional financial aid, but no decision has been created.

These investments can help boost Bombardier’s liquidity position to US$6.2 billion, based on Spracklin, however the company continues to burn through cash as it ramps up manufacture of the CSeries. Simultaneously, a slowdown sought after for business jets is weighing on revenue and margins, and the company hasn’t booked a brand new firm order for that CSeries in several months and a half.

Macquarie Research analyst Konark Gupta said his firm’s proprietary research indicates that Bombardier delivered as many as 75 aircraft within the fourth quarter, well below the company’s guidance of 99 deliveries.

“If our tracking proves to be accurate, there might be material downside risk to our (fourth quarter) revenue and EBIT margin estimates,” Gupta said inside a note to clients.

The company also cancelled 24 business jet orders in the quarter, worth US$1.75 billion, with the hope of reselling them in a higher margin.

For investors, this may be a red alert as far as in-production aircraft is concerned.

As a result, Gupta expects that Bombardier recorded zero net aircraft orders in the fourth quarter, causing its backlog for in-production aircraft to fall 34 per cent “even in the best-case scenario.”

“For investors, this may be a red alert as far as in-production aircraft is concerned,” he wrote.

Possibly the only tailwind within the quarter can come from the weak loonie, based on National Bank analyst Cameron Doerksen. Since the company’s aerospace revenue is principally in U.S. dollars and its costs are mostly in Canadian dollars, “an inadequate Canadian dollar is clearly positive,” he wrote.

Doersken estimates that Bombardier’s aerospace costs will fall by US$288 million in 2016 when the current exchange rate holds.

However, before the company can book more orders the proportion price will continue to languish, Spracklin said.

“Bombardier shares continue being weighed down due to the lack of visibility – both in terms of end-market demand and strategic direction of the company,” Spracklin wrote.

“This has established a disconnect between your current share price and the fundamental worth of Bombardier’s base business.”

kowram@nationalpost.com

Twitter.com/kristineowram