Net income for Bombardier Inc., Canada’s biggest manufacturer of planes and trains decreased by 290 million dollars in 2012. According to their annual financial statement, this represents a 29 per cent loss.
Noted in Bombardier’s annual financial statement, slow economic recovery has weakened sale results. And cash flow is down 741 million. Although the company is not generating expected revenues, their financial reports show a significant growth in investment.
Pierre Beaudoin, President and CEO of Bombardier acknowledged the losses and says the low order intake and overall market conditions were a disappointment.
But the Montreal manufactuer is trying to make a comeback with their newly designed CSeries aircraft. The aircraft has been designed to burn 20 per cent less fuel than its competitors like the Boeing and Airbus. However, its release has been delayed and the plane won’t be ready until the second half of 2015.
The flight-testing phase is taking longer than expected. “We are taking the required time to ensure a flawless entry-into-service. We are very pleased that no major design changes have been identified, this gives us confidence that we will meet our performance targets,” said Mike Arcamone, President of Bombardier Commercial Aircraft.
Zafar Khan, an analyst at Societe Generale SA says Bombardier faces fierce competition in the transportation industry because the economy is still recovering and business and private buyers are spending less.
“Bombardier had a major decline in sales in the transport business and although the aerospace revenue was broadly flat, even in that division, they suffered quite a big fall in profitability.”
Khan says the decrease in income also have to do with a series of bad contracts. Contracts implemented through 2012 cost Bombardier more money than expected. Additionally, the cost of higher exchange rates for the Canadian dollar affected revenues. However, Khan says it’s nothing to worry about as the company is developing new aircrafts and money will be rolling in when they reach the market. The company still has 6.3 billion dollars in liquidity.
In January, Bombardier announced in an internal email it will cut 1,700 employees from its aerospace division to deal with its financial setbacks. Around 1,100 jobs will be cut in Canada and 600 in the United States.
According to Business professor Amr Addassays from Concordia University, Bombardier is trying to reduce current operational costs by cutting employees. But once the Cseries is ready, higher profitability and job creation is expected.
In addition to the CSeries, Bombardier is developing several other aircraft, including the Challenger 350, the Learjet 70 and the global executive jets to gain competitive advantage.
Bombardier’s 2013 fiscal year ended Dec. 31, and the results will be available mid February. Analyst Khan predicts, the results won’t be that different from 2012.
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