Bombardier moving ahead with Russian factory

Pierre Beaudoin is likely hoping Russian President Vladimir Putin won’t do anything else to raise Canadian Prime Minister Stephen Harper’s hackles.

Mr. Beaudoin, after all, is the president and CEO of Bombardier Inc. (BBD.B–TSX), Canada’s biggest maker of airplanes.

And he wants to build an aircraft factory in Russia, despite Mr. Harper’s recent decision to impose sanctions on that country as a protest against the way Mr. Putin has bullied Ukraine.

In fact, Mr. Beaudoin says Bombardier is continuing its negotiations with Rostec, Russia’s state-owned defence conglomerate, about setting up the factory.

And although Canada’s current sanctions wouldn’t hamper the building of the factory itself, its operations could be affected, admits Mr. Beaudoin, by sanctions that might be in effect when the factory opens.

Russia has already OK’d construction of the plant which would make Q400 turboprop planes. The plant, which would be a joint venture, would be located roughly 900 kilometers southeast of Moscow.

In the meantime, Bombardier’s other operations in Russia continue to function relatively normally, the company says.

For its part, Bombardier is considering another joint venture to make Q400 turboprops, but in China. Although China is potentially a big market, the possibility of opening a factory there remains at the discussion stage.

C Series testing to resume soon

Elsewhere, Bombardier continues to try to get its C Series passenger jets back in the air following an engine failure in one of the new jets in late May.

But with the maker of the engines, Pratt & Whitney, having fixed the problem, testing of the jets should resume in a few weeks, Bombardier says.

Indeed, it hopes to have the planes ready for commercial delivery, as planned, in the second half of 2015.

Elsewhere, the company is standing by its recent decision to split its aerospace division into three parts.

Not only should the reorganization improve the division’s flexibility, says Mr. Beaudoin, but it should also cut its overhead by roughly 15 per cent.

For its part, Bombardier can take heart in the interest that several airlines have recently expressed for the C Series jets.

In mid-July, for example, the company received a letter of intent from Zhejiang Loong, a Chinese domestic carrier, for 20 CS100 planes. The deal, if sealed, would be worth roughly US$1.3 billion.

Bombardier also received a letter of intent from Petra Airlines, a regional carrier headquartered in Amman, Jordan, for up to four CS Series planes — an order that could total $298.4 million.

The two announcements came on the heels of a letter of intent Bombardier received from Britain’s Falko Regional Aircraft, a leasing operation, for up to 24 CS100 planes.

Yet, all the news may be bittersweet.  True, any orders are better than none. But the deals may be far below what Bombardier competitors have reportedly scored with much bigger airlines.

Rail vehicle orders continue to roll in

Yet if the company has hit turbulence in its aerospace division, it continues to roll down the track in its rail passenger division.

In March, Bombardier inked a deal to supply 29 commuter trains to Germany’s Deutsche Bahn. The deal, worth US$203 million, is the 13th call-off from a US$1.4 billion framework agreement signed in 2007.

And earlier this year, Bombardier signed a US$2.7 billion contract with the Australian state of Queensland for rolling stock.

Meanwhile, on the other side of the world, the company’s rail division is busy filling a $681 million order to supply more than 360 cars to Bay Area Rapid Transit, the high-speed commuter system that ties San Francisco to its surrounding communities.

The order brings to 775 the number of cars Bombardier has so far sold to BART.

Analysts give Bombardier flying grades

Our market mavens continued to fly first class with Bombardier this month. Of the 13 securities analysts we polled, 10 rated it a buy; one, a buy/hold and only two, a hold.

For the three months ended June 30, Bombardier’s net income fell to US$155 million or $0.08 a share, from $180 million, or $0.10 a share, for the similar period in 2013.

Revenue, however, was higher, rising 11.4 per cent to US$4.9 billion, while gross margin slid two per cent to US$658 million.

For the six months ended June 30, Bombardier’s net income fell to US$270 million or $0.14 a share, from $328 million, or $0.18 a share, for the similar period in 2013.

But revenue presented a brighter picture increasing 4.5 per cent to US$9.2 billion, while gross margin slid 2.9 per cent to US$1.3 billion.



Investor’s Digest of Canada, MPL Communications Inc.
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