Train-and-plane manufacturer Bombardier faces uncertainty in its major markets
Despite second-quarter profits nearly 53 per cent above last year’s, Canada’s Bombardier has seen its share price sink as economic uncertainty, financing problems for business jets and the China high-speed rail crash have hurt orders and eaten into the company’s free cash.Closer to home in the UK, the loss of the recent Thameslink train order continues to cast a pall over operations at its manufacturing plant in Derby.
The group, which comprises Bombardier Aerospace and Bombardier Transportation, painted a gloomy scenario for its regional jet business as a sluggish global economy sapped demand.
“We delivered good results for the second quarter with increased revenues, profitability and earnings per share,” said chief executive Pierre Beaudoin. “Bombardier Transportation’s level of activity remained strong and its book-to-bill ratio of 1.5 is a clear indication of the strength of this segment. While Bombardier Aerospace’s level of new orders in both business aircraft and C-Series commercial aircraft improved substantially year-over-year, we continue to monitor the economic uncertainty and market volatility.” But he warned that both groups had been using free cash, “so we must keep our focus on execution”.
The company expects advances from customers to be lower than anticipated, mainly because regional aircraft orders are being postponed. It delivered 56 aircraft in the second quarter, up from 49 last year. The backlog increased by 20 per cent, to $23bn.
Statistics from the General Aviation Manufacturers Association for the first six months of 2011 show that Bombardier Aerospace was the business aircraft industry leader, both in terms of revenues and units delivered, in the market categories in which it competes. The figures were boosted by 43 net orders for the forthcoming C-Series family including 10 CS300 aircraft from Korean Air.
“We have had three good quarters in a row on business jets and we are quite pleased with this period,” said Guy C Hachey, president and chief operating officer, Bombardier Aerospace. “We did sense more anxiety in the marketplace this quarter, not so much from the high net worth individuals or the buyers as from the financial institutions. There were no cancellations, but some transactions took longer. We also see a very good pipeline, but we are obviously monitoring the situation carefully.”
Orders in the rail sector continue at a high level across Europe, despite the loss of the Thameslink contract in the UK. Transportation orders included a partnership with Siemens for the development and supply of components for Deutsche Bahn’s new ICx inter-city trains, as well as a £354m signalling order from London Underground.
But China’s temporary freeze on high-speed rail development creates new uncertainties. The train crash that killed 40 people in Wenzhou on 23 July – which followed a series of technical problems on the newly opened Beijing-Shanghai high-speed line – has raised doubts over the safety of Chinese trains and the signalling system that was blamed for the accident. China has the world’s biggest high-speed rail network at 8,358km at the end of 2010 and has said the network will exceed 13,000km by 2012 and 16,000km by 2020. It is unclear if those targets will now be trimmed and quite how that will affect Bombardier’s lengthy order book for the region.
Andre Navarri, president and chief operating officer of Bombardier Transportation, said the safety review that China is undertaking is good. Running speeds will be reduced across the high-speed network, “but that is not an issue for Bombardier because we have a full range of trains from 250 to 380km/h.”