Development delays and slowing orders force Bombardier to conserve cash through layoffs
The boom in commercial aviation is not reaching all corners of the industry. Even as and completed a year of record orders and deliveries, the third-largest civil aircraft manufacturer, Canada's , announced 1,700 layoffs, delays to the airliner and a drop in orders in 2013.
The gap between the Big Two and the rest of the industry is huge. Airbus delivered 626 airliners and booked orders for 1,503 in 2013; Boeing delivered 648 and took orders for 1,355. Bombardier, by comparison, delivered 238 business and commercial aircraft, five more than in 2012 but 10 fewer than planned. Net orders fell to 388 aircraft from 481—and 305 of those were for business jets.
, which ranks third in airliner deliveries but fourth in revenues, delivered 209 aircraft in 2013—90 commercial and 119 business jets, compared with Bombardier's 55 commercial and 180 business aircraft. The Brazilian manufacturer has not announced its 2013 order intake, but by year-end its backlog stood at $18.2 billion, its highest level since 2009, because of commercial orders.
The latest cuts are an attempt by Bombardier to contain costs and preserve cash after it delayed CSeries deliveries by at least 12 months and saw business and commercial aircraft orders decline sharply in 2013. The layoffs will be split between 1,100 in Canada and 600 in the U.S., principally in Montreal and Wichita. Plants in Northern Ireland and Mexico are not affected, the company says.
Bombardier Aerospace currently has 38,350 employees worldwide and says the final layoff figure may be lower, as it has 300 open positions, some of which could be filled by affected employees. The company last made major layoffs in 2009, after the collapse of the business-aviation market, when it cut 3,000 jobs. There were also layoffs in 2006-07, at the bottom of a financial downturn for Bombardier that saw the company abandon almost all new product development in a bid to stay solvent.
Bombardier says it has been making efforts to contain costs for the past 12-18 months in the face of massive development expenditures for the all-new CSeries and85 and Global 7000/8000 business jets, as well as the upgraded Learjet 70/75 and Challenger 350. “After a series of different initiatives to reduce cost, unfortunately we have had to make layoffs,” the company says. “These cuts are specifically targeted at cost containment.”
Bombardier Aerospace President and CEO Guy Hachey blames a “persistently sluggish” global economy for the drop in orders. “With its recovery taking longer than originally anticipated, 2013 continued to be a challenging year for aviation,” he says. But while the environment is difficult for business-aircraft manufacturers, Airbus and Boeing are booking massive airliner orders and Embraer has seen significant sales of its E-Jet large regional jets and next-generation E-Jet E2 family.
Bombardier's problem is its product mix and timing. The company's strategy has long been to be first to market, as it was with the 50-seat Canadair Regional jet (CRJ). To stay ahead, Bombardier elected to stretch the CRJ to meet demand for 70-90-seat regional jets. It was first to market, but was quickly overtaken by Embraer, which could not stretch its 50-seat ERJ 145 and so had to develop a new large aircraft for the niche. Now the Brazilian manufacturer is developing the follow-on E-Jet E2 while all that is in prospect for the 60-99-seat/900/1000 are minor upgrades.
Hachey has acknowledged the CRJ will not sell in the numbers it once did, but he expects production to continue. Meanwhile, theturboprop remains a slow seller, and Bombardier's hopes rest on finalizing a deal to manufacture the 70-80-seater in Russia. So the company's commercial-aircraft fortunes now depend on the 110-160-seat CSeries. Bombardier had a chance to be first to market in this sector, but delays in launching and executing the program have pushed entry-into-service of the smaller CS100 into the first half of 2015, with the larger CS300 to follow six months later.
With the reengined Airbusand MAX now breathing down its neck, as well as battering it in the market, Bombardier declines to blame the CSeries delays for the latest layoffs. “A number of factors contribute to our cash flow,” the company says. The biggest drain is the $2 billion a year it has been spending on new aircraft development. This was planned to start declining this year, but analysts estimate the delivery delays will increase CSeries development costs to $5 billion from the original $3.4 billion.
The company says it has the liquidity to cover the extra costs without raising additional funding. Late last year, before the latest delay was announced, Hachey told Aviation Week that non-recurring expenses on the CSeries were still within the targeted $3.9 billion, but he acknowledged that some of the extra costs had been moved to recurring expenses. Despite this, the overall business case for the CSeries remains sound, he said. Bombardier is expected to detail the revised development costs when it releases its 2013 financial results in February.