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Bombardier breaks even; explores 'multiple options' for train unit

A logo sits below cabin windows on the new Bombardier CS100 C Series aircraft, manufactured by Bombardier Inc., during preparations ahead of opening at the 51st International Paris Air Show in Paris, France, on Sunday, June 14, 2015. The 51st International Paris Air Show is the world’s largest aviation and space industry exhibition and takes place at Le Bourget airport June 15 - 21. Photographer: Jasper Juinen/Bloomberg

Jasper Juinen/Bloomberg

Bombardier Inc. says it continues to explore "multiple options" for its train business as the unit's strong profit and sales helped the company break even on an adjusted basis in its latest quarter.

The Montreal plane and train maker burned through $570-million (U.S.) cash in the three months ended June 30 as it narrowed its net loss to $296-million or 13 cents per share. That improves on a loss of $490-million or 24 cents a share in the same quarter last year. Revenue fell 5 per cent to $4.09-billion.

Not counting special charges like employee severance and the benefits from a tax readjustment, earnings per share was break even. Analysts had expected the company to post a 1 cent loss. Bombardier said it now believes its earnings before interest and taxes (EBIT) will come in at the high end of its previous forecast this year.

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Investors were enthused by the results, pushing the shares up 5.4 per cent in Friday morning trading, to $2.54. The stock has gained 63 per cent since hitting a 52-week low of $1.56 last September.

"We have multiple options that we are pursuing" for the train business, Bombardier chief executive Alain Bellemare told analysts on a conference call. "We will do what is right to keep on growing the great franchise."

Mr. Bellemare is two years into a five-year turnaround effort at Bombardier that has seen the company sell stakes in its C Series plane program and train unit and cut more than 14,500 jobs as he works to rebuild earnings. Senior management has been completely overhauled. The CEO is aiming to boost the plane maker's company-wide EBIT margin to between 7 and 8 per cent on revenue of $25-billion by 2020.

The merger that created Chinese rail equipment giant CRRC Corp. in 2015 has shaken up the industry, forcing rival manufacturers to improve their own operations and weigh strategic options to build scale. Bombardier has said repeatedly that it intends to take a pro-active approach as the consolidation unfolds.

The Canadian company and Germany's Siemens are in the final stages of talks to combine their rail operations, according to media reports out of Europe. The deal is expected to create two separate joint ventures for signalling and rolling stock operations, Reuters reported.

Bombardier has also previously held exploratory talks with France's Alstom SA, according to sources. A Siemens-Bombardier tie-up would be a "European answer" to the Chinese threat, rail consultancy SCI Verkehr has said. Any deal would face significant scrutiny by anti-trust authorities.

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There's also the question of just how much it could drain Bombardier's cash flow and profit profile if the returns are shared with a partner. Investors might not be too keen on splitting the spoils of a business that is currently one of the company's top-performing units.

Mr. Bellemare declined to talk about any potential partners or timelines. "We keep looking at this," he said Friday, noting his turnaround plan was engineered on the basis that the train unit remains a standalone business.

Revenue at Bombardier's Berlin-based train unit, known as Bombardier Transportation, rose 4.4 per cent through the first six months versus last year as the EBIT margin topped 8.1 per cent. The company has taken major steps to reorganize operations, slashing staff and boosting the use of existing designs to improve profit.

Pension fund manager Caisse de dépôt et placement du Québec owns a 30 per cent stake in Bombardier's train business while the Quebec government owns a 49.5 per cent stake in the company's C Series airliner program.

The plane, Bombardier's big bet to drive revenue in its commercial aerospace unit over the next two decades, is currently the subject of a trade challenge by rival Boeing Co., which wants the U.S. government to slap hefty tarrifs on C Series imports. Mr. Bellemare said Bombardier has a contingency plan in place should a decision on that challenge go against the company. He declined to provide details.

The C Series has been in commercial service for roughly one year and is delivering better-than-expected results in key areas like fuel burn, range, operating costs and reliability, Bombardier said. The company said it expects to announce significant improvements to the performance specifications for both C Series models in the third quarter.

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About the Author
Quebec business correspondent

Nicolas Van Praet is Quebec correspondent for the Report on Business. He joined The Globe and Mail in 2014 after eight years at the National Post, where he covered the North American auto industry crisis and several other major stories. More


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