Bombardier’s unexpected restructuring, layoffs raise concern
Aerospace division has been into three units, each reporting to Bombardier CEO Pierre Beaudoin.
MONTREAL — Bombardier Aerospace’s unexpected layoff of 1,800 employees, an organizational restructuring and the retirement of its CEO, has left workers and some analysts concerned, even though the changes are seen to be financially positive for the aircraft manufacturer.
The Montreal-based company announced the layoff of non-unionized employees and the retirement of Guy Hachey as it divided the aerospace division into three units, each reporting to Bombardier CEO Pierre Beaudoin.
In a letter to employees, Beaudoin said the aerospace division’s financial performance and execution have not met expectations, thus requiring a change that will impact employees around the world including at the corporate headquarters in Montreal.
Even though the job cuts won’t affect unionized manufacturing employees, machinists union representative Dave Chartrand said the change is worrisome.
The outlook for the aerospace industry is positive, but Chartrand said that unionized workers wonder if the large restructuring will eventually touch them through changes in collective agreements.
“A huge change like that doesn’t go without certain ripple effects eventually,” he said in an interview.
Chartrand said he was surprised by the sudden departure of Hachey, who gave no signals that he was about to leave. He described the former auto executive as someone who was respected by workers because he took the time to listen when visiting the shop floor.
“Guy was regarded as a very classy individual who actually took the time out to go and see people and then thank them for the work that they did.”
He doubts Hachey would have been held personally blamed for some of the division’s recent problems, including development delays of the new Learjet 85 business plane or the CSeries commercial jet, which is grounded because of an engine incident nearly two months ago.
“They expecting certain results and maybe that has something to do with it.”
Analyst David Tyerman of Canaccord Genuity said the restructuring, which effectively removes a layer of management, should improve the aerospace division’s margins, which he says have been weak for a very long time.
He’s surprised that so many workers can be removed, on top of 1,700 announced last January in Canada and the US.
Tyerman questions why the changes are being made now, after the company had a successful airshow in Farnborough, a major event for aircraft manufacturers.
Whenever a senior executive leaves so prematurely, questions naturally surface if there factors behind the departure such as further delays for the new CSeries commercial passenger jet, lost sales contracts or weaker margins, Tyerman added.
“It could be that (Hachey was around for) six years, it’s been a lot of hard work for him and maybe he just burned out. So it may actually be nothing…and at this point you have to worry a little bit at least.”
Beaudoin’s letter to employees said that ongoing changes at Bombardier’s railway division and the new aerospace structure “will enable us to be more agile and flexible to better answer current challenges and satisfy customer needs.”
“I strongly believe that we can achieve significant improvements in our performance and execution across the business. Together, we must renew ourselves to meet this challenge and capitalize on the significant growth ahead.”
Benoit Poirier of Desjardins Capital Markets said the organizational changes raise concerns about the second-quarter results to be announced next Thursday, but should be positive for margins in the long-term.
He estimated the job cuts could translate into about US$136 million of annual savings and a 1.3% increase to aerospace EBIT (earnings before interest and tax) margins.
Splitting the division into three will also shed more light on its revenues and margins, helping investors to better understand its growth potential and profitability drivers, Poirier said.
Chris Murray of AltaCorp Capital said the transportation division’s success to date in reducing administrative costs and internal frustrations at the financial performance and aerospace program delays are behind the changes.
“Our bias over the longer term would be to see higher aerospace margins…however it may be only in later 2015 or 2016 before the impact becomes apparent,” he wrote.
© 2014 The Canadian Press