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Bombardier on the cusp of breaking even on runway to turnaround, says CFO

Last Updated Dec 14, 2017 at 6:40 pm EST

The corporate logo of Bombardier is shown. Bombardier Inc. expects its revenue to grow to between US$17 billion and US$17.5 billion next year. THE CANADIAN PRESS/HO

MONTREAL – After years of underwhelming results, layoffs and near bankruptcy, Bombardier Inc. says it is on the cusp of breaking even on the runway to a financial turnaround in 2020.

“We’re largely there,” chief financial officer John Di Bert told a New York investor day conference Thursday.

He said breaking even is “touch and go” in 2017 but next year should deliver positive earnings per share.

The Montreal-based transportation giant said it’s on track to deliver on its promised five-year turnaround with better revenues and profits at its aerospace and railway divisions.

Chief executive Alain Bellemare said Bombardier (TSX:BBD.B) anticipates strong growth now that it is winding down heavy spending to develop the C Series and Global 7000 business jet.

“The transformation of Bombardier is well underway and with the significant investment cycle coming to an end we have the right foundation in place to drive profitable growth for years to come,” he told analysts.

Bellemare pointed to business jets, which are increasing margins despite flat deliveries. He said the company had expected this key part of its business to have recovered, but industry aircraft deliveries have fallen despite rising corporate profits.

“Honestly we were expecting a much better business aircraft rebound than what we’ve seen.”

Bellemare said the company’s overall focus is to get the new Global 7000 to market next year and close the Airbus C Series joint venture. After that, he’s open to any other strategic alliances for all parts of its operations.

“The good news is we have no time pressure right now to do anything quick. We have time to think, we have time to reflect on where we are and where we want to go.”

Asked if there can still be a larger C Series, Bellemare said it’s premature to say how that could strategically fit with the Airbus A320 family.

“On a standalone basis I think it would have been a real challenge to launch a CS500,” he added.

Bombardier said revenues will grow to between US$17 billion and US$17.5 billion next year.

That’s up by about US$1 billion from its guidance for 2017 at the mid-point of the range, but below the US$18.4-billion forecast by analysts, according to Thomson Reuters.

Bombardier said the growth in revenue is expected to be driven by the ramp-up of key projects at Bombardier Transportation and higher C Series aircraft deliveries.

Over the next three years, the company’s objective is to grow revenue by US$4 billion to reach US$20 billion, which represents a seven per cent compound annual growth rate.

It also aims to improve the free cash flow by about US$1 billion to break even in 2018 and generate US$750 million to US$1 billion of cash in 2020.

Industry analysts said the updated guidance largely met their expectations although revenue forecasts were lighter than they had expected.

“Equity investors own Bombardier for multi-year cash flow improvement and so the unchanged 2020 outlook with good progress in 2018 does not change the investment case and the key from here is execution,” said Seth Seifman of J.P. Morgan.

He said questions linger about the future of the commercial aircraft division given lower than expected CRJ and Q400 deliveries and the proposed sale of the C Series program to Airbus.

Bombardier expects to deliver just 35 regional planes and 40 C Series aircraft in 2018.

Fred Cromer, the head of Bombardier Commercial Aircraft, insisted that its workhorse regional jets continue to have a future within Bombardier. While the Airbus partnership won’t directly help that part of the business, he said there would be some unforeseen benefits.

“Having that joint venture with Airbus as a partner strengthens all of commercial aircraft and certainly can open doors for new opportunities where we maybe not see them today.”