’s move to restructure its aerospace unit into three independently operated segments has ignited speculation that the company could spin off part of its aviation business, but some analysts believe that is an unlikely outcome.
In a surprise move, the Canadian transportation giant announced late July 23 that the aircraft side of the company, Bombardier Aerospace, will be reorganized into a Commercial Aircraft segment, a Business Aircraft segment and a new Aerostructures and Engineering Services segment. The heads of all three stand-alone businesses will report to Bombardier Inc. President and CEO Pierre Beaudoin "effective immediately."
Guy Hachey, the president and chief operating officer of Bombardier Aerospace since 2008, will "retire," the company said in a statement. Hachey’s biography has been removed from the management section of the company’s website.
The reorganization, which takes effect Jan. 1, 2015, would seem to make it easier for Bombardier to sell off one of its aviation businesses. "We recognize that the restructuring actions may broaden the company’s strategic alternatives," Bank of America Merrill Lynch analyst Ronald J. Epstein wrote in a July 24 research note to his clients.
Teal Group analyst Richard Aboulafia agrees. "It makes sense that they would do this so they could sell a unit, either for cash, strategic direction or out of desperation," he says. He believes Bombardier might consider selling off its Commercial Aircraft business, which has seen declining sales of regional aircraft and has bet its future on a new $4 billionairliner that is struggling to gain market traction.
Other observers are focusing on the aerostructures operation, which also does third-party work for customers such asand would appear particularly appealing to China as the country moves to develop an indigenous aircraft manufacturing industry.
But Cameron Doerksen, a Montreal-based analyst at National Bank Financial, thinks it unlikely that Bombardier would sell off any of its aviation assets. He believes the reorganization was prompted by a desire to eliminate a layer of bureaucracy – Bombardier Aerospace – that stood over units that already had their own management, sales and public relations teams. "This was driven by a need for better profitability in the aerospace division," he says. "It looks like it was decided months ago, not just in recent weeks."
Doerksen says a sale of the aerostructures business would be particularly complicated. "The problem is they do third-party work in the same plants where they produce major components for their own aircraft," he notes. He finds it hard to believe the company would abandon its big bet on the CSeries, which it hopes will become a major revenue and profit driver. The cutting-edge aircraft made its first flight last September, but the flight-test program was halted after a May 29 failure of its Pratt & Whitneyengine.
Epstein predicts that the restructuring will be positively received by investors unhappy over delays in the CSeries and85 programs and market share losses in regional jets. "Management is taking steps to fix operating issues," he says. And, he adds, "with stand-alone segments, resource-starved programs in the business jet portfolio may get more attention."