By Jon Ostrower and Ben Dummett
MONTREAL-- Bombardier Inc., struggling under the weight of
multiple new aircraft programs, said Thursday it would spin off
part of its rail business, a move aimed at shoring up its balance
sheet.
The planned initial public offering of Bombardier Transportation
marks Chief Executive Alain Bellemare's first strategic move since
Bombardier tapped the former United Technologies Corp. executive in
February to help revive its fortunes. Bombardier has bet much of
its future growth on its new CSeries commercial jet, but costly
delays have postponed the aircraft's launch, prompting the
management shake-up and a strategic review of operations to
generate efficiencies.
Family-controlled Bombardier plans to sell a minority stake in
Bombardier Transportation in an IPO in the fourth quarter, and list
the shares in Germany, where the business is based. It would
compete for investor attention with two other listed train makers
in Europe: Germany's Siemens AG and France's Alstom S.A.
Other strategic moves for the rail unit remain on the table,
including a joint venture or partial sale, Mr. Bellemare signaled
after the company's annual meeting. He also said the company was
keeping all possible options open for its aerospace operations.
Bombardier faces growing pressure to demonstrate it can operate
profitably even as the development of new products, including its
all-new CSeries, have stretched well past budget and schedule. In
the first quarter, net income fell 13% to $100 million and revenue
was flat at $4.4 billion.
A train-unit IPO would further bolster Bombardier's financial
position after it raised about $3 billion earlier this year from an
issue of new debt and equity. Its rail business is bigger than
either of its commercial or business aircraft operations and
generates more operating profits.
"The IPO is expected to crystallize the value" of the
transportation unit, Mr. Bellemare said on Bombardier's
first-quarter earnings call. He said it was too early to say how
much of a stake Bombardier planned to sell, or to estimate IPO
proceeds.
The move comes amid recent reports Chinese locomotive makers CSR
Corp. and CNR Corp. are eyeing a controlling stake in the unit
after they complete a planned merger. Mr. Bellemare didn't address
that speculation, but he stressed that Bombardier's rail business
is not for sale.
Maintaining control of the business is attractive because it
tends to perform better during economic downturns, when governments
increase spending on rail and other infrastructure projects, and
demand for aircraft falters. The opposite is often true during
times of economic expansion.
"Having the ability to have businesses that can offset each
other during different cycles is a huge benefit," Mr. Bellemare
said.
Mr. Bellemare also said that slowing demand in Russia, China and
Latin America for Bombardier's most expensive long-range Global
business jet line could prompt a cut in output. The opulent jet is
a cash cow for the company and the largest contributor of revenue
to its aerospace business. While simultaneously completing its
all-new CSeries jetliner for the world's airlines, Bombardier is
juggling development of a major update to its Global line, with two
new products due in 2016 and 2017.
Shareholders here raised questions about the performance of the
company's shares, the cutting of its dividend and levels of
executive and director compensation.
"It doesn't appear a return for shareholders that we would
expect," said Normand Caron of the shareholder-rights' group
Mouvement d'éducation et de défense des actionnaires, or MEDAC. Mr.
Caron said his group recommended that shareholders vote against the
company's compensation plan, which was approved.
Looking at the company's performance in his three months as
chief executive, Mr. Bellemare offered a frank assessment of its
flagship product. "The drag on Bombardier right now is CSeries," he
said.
Bombardier confirmed Thursday that Swiss International Air
Lines, a division of Deutsche Lufthansa AG, would be its first
customer to take delivery of and operate the CS100 aircraft.
Despite its plans to complete regulatory approval for the new 110-
to 135-seat jet by the end of the year, the new arrangement with
Swiss targets the handover of the first jet around mid-2016, said
Mr. Bellemare.
In March, The Wall Street Journal reported the company was near
a deal with Swiss International Air Lines to be the first operator
of the new jetliner. The aircraft is expected to make its debut at
this year's International Paris Air Show, the company said.
Judy McKinnon contributed to this article.
Write to Jon Ostrower at jon.ostrower@wsj.com and Ben Dummett at
ben.dummett@wsj.com
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