AIR Airbus SE

By Jacquie McNish 

Bombardier Inc. said it may exit a joint venture with Airbus SE to build commercial jets because rising production costs threaten future returns on its investment.

Shares of the Canadian plane and train maker fell as much as 38% to a low of C$1.14 ($0.87) in morning trading Thursday on the Toronto Stock Exchange. The company also lowered its guidance for the fourth quarter.

Bombardier said the need for additional cash to finance the production of the commercial jets in Mobile, Ala., may undermine any prospect of future profits, potentially forcing Bombardier to write down the value of the Airbus venture.

Bombardier agreed to give control of its CSeries jets to Airbus in 2017 for no money upfront to rescue it. The new jet series had financially crippled the Montreal company after years of delays and billions of dollars of investment. Airbus renamed the single-aisle aircraft the A220.

An Airbus spokesman said it "remains committed to the success of the A220 program and will continue to fund the program on its way to break-even."

The latest financial projections for the program have pushed back its timeline for breaking even and requires more investment to boost production, Bombardier said. Airbus delivered 48 of the aircraft to customers last year, leaving its backlog at 495 aircraft as of Dec. 31. Airbus's strategy since taking control of the venture has been to drum up more orders for the jet and scale up production in order to negotiate better rates with suppliers.

Bombardier, which owns about a third of the venture, agreed to inject up to $225 million of cash into the partnership in 2018 and a maximum of $350 million in 2019. Bombardier may be on the hook for additional funds in future years if cash shortfalls continue.

The Canadian company has limited financial resources to absorb additional costs after a number of production problems with major commuter train orders delayed deliveries in recent years. Bombardier said Thursday morning that it expects to report negative free cash flow of $1.2 billion for 2019 and that results for the fourth quarter would fall short of expectations.

--Benjamin Katz contributed to this article.

Write to Jacquie McNish at Jacquie.McNish@wsj.com

(END) Dow Jones Newswires

January 16, 2020 11:58 ET (16:58 GMT)

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