Bombardier has stated that it has not abandoned the Learjet 85 program, noting there have already been more than 75 test flights. Bombardier Photo
Tepid demand for Bombardier Inc.’s Learjet 85 business aircraft has forced the plane maker to suspend the program, in a move that will result in 1,000 layoffs.
The cost-cutting decision will allow the company to devote its attention to developing its CSeries single-aisle commercial jet and also nurture sales for its upcoming Global 7000 and 8000 long-range business jets, Bombardier announced Thursday.
The OEM is slated to begin deliveries of the much-delayed CSeries jets in the second half of this year. The Global 7000 is on target to enter service in 2016, while the Global 8000 is scheduled to debut in 2017.
The layoffs will hit 620 employees in Wichita, Kan., and 380 workers in Mexico.
“Given the weakness of the market, we made the difficult decision to pause the Learjet 85 program at this time,” Bombardier chief executive officer Pierre Beaudoin said in statement before the Toronto Stock Exchange opened.
Bombardier shares tumbled $1.07, or 26 per cent, to close at $3.07 in heavy trading Thursday on the TSX.
Before the announcement of the layoffs, Bombardier’s website noted that the company’s aerospace division employed more than 37,700 workers.
A pause in the Learjet 85 program will allow the company to devote its attention to developing the CSeries commercial jet. Bombardier Image
Bombardier will record a US $1.4 billion pretax charge in the fourth quarter of 2014 due to the writedown of the Learjet 85 program. The company will book US $25 million in severance costs in the first quarter of this year.
Desjardins Capital Markets analyst Benoit Poirier pointed out that the manufacturer has reduced its 2014 guidance for cash flow to US $800 million from aerospace, compared with the original targeted range of US $1.2 billion to US $1.6 billion.
“We believe this decision will raise concerns about management’s decision process,” Poirier said in a research note. But, he said management made the right decision and remains committed to reducing capital expenditures and forging ahead with the CSeries and new Global jet programs.
During a conference call with industry analysts, Beaudoin said Bombardier hasn’t abandoned the Learjet 85 program, noting that there have already been more than 75 test flights. “When we say pause, we mean pause. We have a good aircraft,” he said.
Bombardier launched the Learjet 85 program in 2007, but then the 2008-09 recession eroded global demand for business jets generally. “When we decide to go forward with the program again, the issue that we have is that we’ve been following this market obviously constantly since the slowdown in ’08,” Beaudoin said. “And right now, we don’t see it picking up at the rate that we anticipated. So, we say it’s a good time to take a pause. Let’s see how the market behaves and then we can build this great aircraft and take it to market.”
Bombardier said that for 2014, its preliminary statistics show that it delivered 204 business aircraft and 84 commercial planes. The aircraft and train manufacturer, which had about US $2.4 billion in cash on Dec. 31, 2014, will release its fourth-quarter and 2014 financial results on Feb. 12.
BMO Nesbitt Burns Inc. analyst Fadi Chamoun said he didn’t expect Bombardier to reach its cash flow targets, but Thursday’s announcement will lead to an even weaker outcome for the 2014 financial performance. “This leaves the company with a very tight liquidity position at year-end,” Chamoun said in a research note.