Bombardier Inc said on Thursday it will stick by its remaining commercial aerospace program after agreeing to sell its biggest land asset, as the Canadian plane and train maker strives to raise cash to pay down its debt. Investors reacted positively to the news, pushing up the stock as much as 3 percent to C$4.05 in early trade.
The company, which has a long-term debt of $9.1 billion and considered bankruptcy in 2015, sold its Downsview site in northern Toronto to the Public Sector Pension Investment Board for $635 million. That facility is an assembly site for its Q400 turboprop passenger planes and is one of four final assembly sites it uses.
Thursday's sale, combined with an equity raise of C$638.4 million ($496.73 million) in March gives the company $1 billion in cash. "This (the Q400) is a product line we'll keep pushing," Chief Executive Alain Bellemare told analysts on a call, allaying concerns about the plane line's future. The company has up to five years to find a new assembly site for the plane.
He said the deal would allow the company to "monetize an underutilized asset and optimize our business aircraft operations." The Q400, with a backlog of 50 planes, has about 25 percent of the global market in small commercial planes, second to European rival ATR, the world's largest maker of turboprops. Bombardier also agreed to sell a controlling stake in its flagship CSeries jet to Airbus last year for a token C$1 after struggling for years to make the plane line commercially successful.
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."
Bombardier 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. Bombardier's 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 $721 million of its available cash in the quarter - more than last year.
Bombardier said it is on track to achieve free cash flow breakeven for the full 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. In a staff memo on Wednesday, 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.
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