Are layoffs looming at Bombardier?

Plane-maker could announce layoffs and production decreases because of a lack of new orders for its regional planes

August 29, 2011   by The Canadian Press

MONTREAL—Bombardier is eying layoffs and production slowdowns for its regional planes next week because of a dearth of new orders received, industry analysts say.

The Montreal-based plane-maker could disclose a change Wednesday when it reveals the results for the second quarter of its fiscal year.

Bombardier officials have long said the company was waiting for decisions from several airlines before making any such moves.

But order intake has been weak, with no orders announced in the quarter and only five in the prior three months.

Benoit Poirier of Desjardins Capital Markets said a production rate decrease will likely be announced in light of the current economic uncertainty and delayed purchasing decisions.

“We believe Bombardier is in a difficult position – it wants to minimize the variability of its production rates due to the associated costs, but may not have other options,” he says.

The backlog for Q400 turboprops stands at 11 months while regional jets are 18 months. Bombardier’s target for both aircraft types is 18 to 21 months.

In the longer term, the retirement of older regional jets could force Bombardier to raise its production in the next fiscal year, Poirier adds.

Cameron Doerksen of National Bank Financial says reduced production would likely be focused on regional jets, since Bombardier has already announced a slowdown for its Q4000 TurboProp later this year.

He added the impact on forecasts would be small since the production rate is already relatively low and the margins are believed to be thin.

Bombardier is reportedly in the running for an order for 25 regional jets from Indonesia’s Garuda airline.

However, Bombardier, the world’s third-largest aircraft manufacturer faces tough competition for turboprop orders from Europe’s ATR and for jets from Embraer in Brazil.

Some manufacturers blamed European debt problems for last year’s temporary lull in sales.

But, there are several positive signs on the horizon.

The inventory for used jets is at the lowest level since November 2008 and business jet use is up 3.7 per cent from last year.

Rivals such as Gulfstream, Dassault, Cessna and Embraer have all pointed to higher orders in the second quarter, particularly in the large cabin segment.

Doerksen said the biggest risk for Bombardier over the next two years would be a delay in the business jet recovery from a potential economic downturn.

“The downside to new aircraft delivery rates is probably limited given that rates have not yet recovered from trough levels.”

Bombardier’s shares have plummeted about 30 per cent since July and are trading at the same level as in November 2008, during the height of the credit crisis.

In addition to being dragged down by the broader market sell-off, Bombardier has been hampered by some lost contracts.

It lost a large rail contract in Britain to Siemens, saw high-speed rail work in China halted because of a deadly collision of one of its trains. It also has concerns about a CSeries order cancellation from Indiana-based Republic Airways, and has new competition from a re-engined Boeing 737.

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