DBRS Confirms Bombardier at B, Changes Trend to Stable

DBRS Limited (DBRS) confirmed the Issuer Rating of Bombardier Inc. (Bombardier or the Company) at B and has changed the trend to Stable from Negative. This action reflects some evidence of stabilization in the Company’s financial profile, albeit at a very weak level; the expectation that further modest improvement should be achievable over the next 12 months; material progress achieved after two years of the Company’s margin-improving five-year transformation initiative, especially in the rail division; greater visibility regarding the viability of the C Series program as a result of the partnership announced with Airbus SE; and liquidity that remains sufficient for near-term requirements. Bombardier’s rating continues to be supported by its 70% stake in Bombardier Transportation (BT), a global leader in rail manufacturing and solutions; the significant capital and technological barriers to entry into its various business lines; and the Company’s broad portfolio of business aircraft offerings, to be complemented by the ultra-long-distance Global 7000, which is currently undergoing flight testing and may enter into service in H2 2018. Significant execution risks associated with new aircraft development, volatile end markets and modest margins are structural challenges.

In the last 12 months (LTM) to Q3 2017, revenues decreased due to production rate adjustments by Bombardier’s business aircraft and regional jet businesses to align output with market conditions, only partially offset by growth at BT. However, operating earnings and margins improved, largely reflecting the successful implementation of the Company’s transformation plan, which has included substantial workforce reductions. Bombardier continued to run a significant free cash flow deficit, which was financed with cash raised from previous sales of non-controlling interests in BT and the C Series program. Debt has remained roughly flat and credit metrics achieved very small improvement.

DBRS anticipates that the Company’s business risk profile is likely to remain largely unchanged over the next 12 months, although further improvements from the transformation program should be supportive. The financial risk profile should achieve modest improvement, although DBRS views the Company’s target of achieving a free cash flow break-even position in 2018 as aggressive. Key metrics are projected to improve to within at least the B rating category in F2018.

Overall, DBRS views Bombardier’s strategic actions, such as the Airbus partnership, operating performance within the context of the transformation plan and important milestones achieved such as the successful flight testing hours of the Global 7000 as illustrative of a more stable footing. Liquidity remains adequate for near-term requirements and there are no significant long-term debt maturities until 2020. (DBRS expects the new issuance of 7.50% Senior Notes due in 2024 that is currently underway, and the associated tender offer for the 4.75% Senior Notes due 2019, to be successful.) Bombardier would need to demonstrate material improvement in key financial metrics and prove that free cash flow surpluses have been achieved or are imminent before DBRS would consider an upgrade. Significant cost overruns or Entry-Into-Service (EIS) delays of the Global 7000, evidence that the margin gains under the transformation plan are not sustainable, concerns regarding liquidity, or substantial downturns in key destination markets may lead to DBRS considering a downgrade.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodology is Rating Companies in the Industrial Products Industry, which can be found on dbrs.com under Methodologies.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities.

This is an unsolicited credit rating.

This rating is no longer endorsed by DBRS Ratings Limited for use in the European Union.