Monday, April 7, 2008
Strong FY 2007 Results for BBD, Small T-Props Phased Out, MRJ Comments
As a result of the growing aircraft size, the company is also phasing out production of its Q200 and Q300 series aircraft in favor of its Q400. The backlog of the smaller aircraft is only 17 and production will cease in May 2009 with the final delivery of the aircraft types. Most of the employees will move over to the Q400 production line
Bombardier would not weigh in on the newly launched Mitsubishi Heavy Industry's MRJ except to say that the aircraft has modern engines making the performance good but, given the fact it is a very heavy aircraft for regional operations, operating costs will not be as good as one would expect given the engine. Officials indicated that they are continuing to study the new aircraft both with respect to it performance as well as Mitsubishi’s strategy in the market. They noted that the aircraft is being developed in Japan that does not have a large local market. While the MRJ is intended to be competitive with the CSeries, officials said that Mitsubishi seems to be focusing on the regional market whereas the CSeries is designed for mainline airlines. They also pointed out that Mitsubishi has a lot to do before they established themselves in the regional market.
As has Embraer, Bombardier said it will be watching the funding of the MRJ to ensure it complies with international laws and Japan does not unduly subsidize development. It also said that Bombardier do not fear, but welcomes, competition as it provides an opportunity for Bombardier to leverage its experience and its role as a leader in the regional airline marketplace and that is so of all competitors including the Sukhoi SSJ.
As to the downturn in the U.S. economy, Bombardier said that its Q1 order book stands at 54 with a great deal of product diversity including 14 CRJ 700s, 19 900s and 21 Q400s. It pointed out it is much less dependent on the North American market, because, although it remains important, more and more of its order book comes from overseas.
Bombardier continues to develop its partnership with China’s AVIC 1 through which it currently has a supply contract for the Q400 with Shenyang Aerospace, which the company said is progressing well. In addition, the two are discussing how they would participate together on an ARJ21 derivative of the ARJ 700, which will be called the ARJ 900. The company also reported the two are continuing to hammer out the details of AVIC I’s participation in the proposed CSeries.
In response to questions as to whether or not it is working on similar alliances in Russia, Bombardier said that while Russia is a large market for regional aircraft, regardless of whether they would be regional jets or turboprops, but at this time there are no alliance discussions.
The company fielded numerous questions on its production plans for the CSeries which could be produced in the U.S. It remains in discussions with the Canadian government concerning investment in order to keep production at its preferred site at Mirabel. However, it acknowledged a recent announcement by Kansas City, Mo. that it was providing incentives to attract the new plant. However, Bombardier said that discussions with other government entities remain private unless announced by the government as had Kansas City. Related Story
Bombardier reported net income of $317 million, or $0.16 per share (diluted), compared to $268 million, or $0.14 per share last fiscal year and a record backlog of $53.6 billion, an increase of $12.9 billion compared to January 31, 2007. It also reported free cash flow of $2 billion, compared to $610 million last fiscal year and consolidated revenues of $17.5 billion, up 18 percent compared to $14.9 billion last fiscal year.
"The strong popularity of our products constitutes the main driver of this year's success,” said Laurent Beaudoin, chair and chief executive officer, Bombardier Inc. “Our backlog has substantially increased, reaching historically high levels for both groups. Our liquidity position is particularly solid and profitability has continued to increase, as we keep our focus on cost.
At Bombardier Aerospace, both business and regional aircraft enjoyed strong demand as demonstrated by an exceptional level of net orders,” he continued. “At Bombardier Transportation, revenues increased by 18 percent and the order flow was strong, as indicated by another high book-to-bill ratio of 1.5 and the highest backlog in the rail industry. The strengthening of the balance sheet, the strong cash position and large backlog will enable Bombardier to weather current financial market turmoil. We remain committed to improving long-term profitability, maintaining strong liquidity and further strengthening our capital structure in order to regain investment grade status.”
Bombardier Aerospace revenues increased by 17 percent to a record $9.7 billion, while EBIT rose to $563 million, compared to $322 million for last fiscal year. This produced an EBIT margin of 5.8 percent, versus last year's 3.9 percent. Free cash flow more than doubled to $1.7 billion, compared to last year's $814 million.
Bombardier Aerospace's backlog reached a new record level of $22.7 billion, an increase of $9.5 billion compared to January 31, 2007. It was an excellent year with 698 firm orders for business, regional and amphibious aircraft, compared to 363 aircraft last fiscal year. Deliveries also increased to 361 aircraft, versus 326 for the corresponding period last year. For fiscal year 2009, the group expects an increase in business aircraft deliveries along with an improved mix, while regional aircraft deliveries are expected to remain at a similar level compared to fiscal year 2008.
In the business aircraft market, Bombardier Aerospace maintained its leadership with a record 232 deliveries as well as 452 orders, for a book-to-bill ratio of 1.9. Interest for business jets in major emerging markets, such as Russia and Asia, has grown significantly, shifting demand away from the U.S. which now accounts for approximately 30 percent of the group's new orders.
With the entry into service of the Learjet 60 XR and the launch of the all-new Learjet 85 featuring an all-composite structure, Bombardier Aerospace further strengthened its product portfolio, the most complete in the business aircraft industry.
Regional aircraft orders surged to 238 orders compared to 87 in the last fiscal year. The introduction of the next generation of the CRJ 700 and CRJ 900 aircraft as well as the launch of the CRJ 1000 NextGen regional jet have stimulated demand and contributed to 141 regional jet orders for fiscal year 2008, compared to 49 last fiscal year.
Increasing interest for the Q400 aircraft has generated demand from companies in various countries such as Australia-based Qantas Airways, U.K.'s Flybe and Memphis-based Pinnacle Airlines. As the trend towards larger turboprops continues, Bombardier Aerospace announced, in March 2008, the launch of the Q400 NextGen turboprop airliner.
Bombardier Aerospace continues to work towards reaching an EBIT margin of eight percent, now expected by fiscal 2009.
Fourth Quarter Results
Consolidated net income amounted to $218 million, or $0.12 per share, for the fourth quarter of fiscal year 2008, compared to $112 million, or $0.06 per share, for the same period the previous year. For the year ended January 31, 2008, net income was $317 million, or $0.16 per share, compared to $268 million, or $0.14 per share, for the previous year.
Consolidated revenues totaled $5.3 billion for the fourth quarter ended January 31, 2008, compared to $4.4 billion for the same period last year. For the year ended January 31, 2008, consolidated revenues reached $17.5 billion compared to $14.9 billion for the same period last year.
For the fourth quarter ended January 31, 2008, EBIT amounted to $305 million, or 5.8 percent of revenues, compared to $244 million, or 5.5 percent, for the same period the previous year. For the year ended January 31, 2008, EBIT from continuing operations before special items reached $902 million, or 5.2 percent of revenues, compared to $577 million, or 3.9 percent, for the same period the previous year.
Net financing expense amounted to $92 million for the fourth quarter of fiscal year 2008, compared to $70 million for the corresponding period of last year. The $22-million increase is mainly owing to net losses on certain financial instruments and costs in relation to early repayment of $1 billion of long-term debt. For the year ended January 31, 2008, net financing expense reached $301 million, compared to $218 million for the same period last year. The $83-million increase is mainly owing to higher interest expense on long-term debt and net losses on certain financial instruments; partially offset by higher interest income on invested collateral and higher interest income on cash and cash equivalents.
The special item for the year ended January 31, 2008 relates to Bombardier Transportation's write-off of the carrying value of its investment in Metronet. For fiscal year 2007, it relates to the restructuring plan initiated in fiscal year 2005 to reduce the cost structure in Bombardier Transportation.
The effective income tax rate was a recovery of 2.3 percent for the fourth quarter of fiscal year 2008 compared to a charge of 35.6 percent for last fiscal year. For fiscal year 2008, the effective rate was 27.8 percent compared to 27.5 percent last fiscal year.
For the three-month period ended January 31, 2008, free cash flow amounted to $924 million, after a discretionary payment of $260-million to pension funds, compared to $1.1 billion for the corresponding period the previous year. For the year ended January 31, 2008, free cash flow amounted to $2 billion, compared to $610 million last fiscal year, a $1.4-billion increase.
As at January 31, 2008, Bombardier's order backlog stood at a record level of $53.6 billion, compared to $40.7 billion as at January 31, 2007.
Bombardier Aerospace's revenues amounted to $2.9 billion for the three-month period ended January 31, 2008, compared to $2.6 billion for the same period the previous year. Revenues amounted to $9.7 billion for the year ended January 31, 2008, compared to $8.3 billion for the previous year. The $304-million and $1.4-billion increases are mainly due to increased manufacturing revenues reflecting increased deliveries and improved selling prices for business and regional aircraft.
For the fourth quarter ended January 31, 2008, EBIT amounted to $196 million, or 6.8 percent of revenues, compared to $158 million, or 6.1 percent, for the same period the previous year. The 0.7 percentage-point increase is mainly due to improved selling prices for business aircraft and regional aircraft; improved margins on service activities; and better absorption of amortization expense due to higher revenues; partially offset by higher production costs mainly due to escalation in the price of materials and the negative impact of the strengthening of the Canadian dollar and pound sterling.
For the year ended January 31, 2008, EBIT amounted to $563 million, or 5.8 percent of revenues, compared to $322 million, or 3.9 percent, for the previous year. The 1.9 percentage-point increase is mainly due to improved selling prices for business aircraft and regional aircraft; improved margins on service activities; lower research and development expenses; net gains on certain financial instruments carried at fair value due to the impact of lower interest rates as well as the impact of a general improvement in the financial condition of regional airlines; and better absorption of amortization expense due to higher revenues. These items were partially offset by higher production costs, mainly due to escalation in the price of materials and the negative impact of the strengthening of the Canadian dollar and pound sterling versus the U.S. dollar, including a charge of $45 million from changes in the long-term foreign exchange assumption for the Canadian dollar, which led to revisions of cost estimates for programs under average cost accounting; and lower gains resulting from the revision of cost estimates for programs under average cost accounting.
Free cash flow totaled $554 million for the fourth quarter ended January 31, 2008, after payment of discretionary pension fund contributions totaling $249 million, compared to $771 million for the same period last fiscal year. The $217-million decrease is mainly due to a negative period-over-period variation in net change in non-cash balances related to operations and higher net additions to property, plant and equipment, reflecting investments in the CRJ1000 NextGen regional jet program and the purchase of tooling previously under an operating lease related to the Challenger 300 aircraft program, partially offset by higher profitability.
For the quarter ended January 31, 2008, aircraft deliveries totaled 115, compared to 101 for the same period the previous year. The 115 deliveries consisted of 76 business aircraft, 38 regional aircraft and one amphibious aircraft (69, 31 and one aircraft respectively for the corresponding period last fiscal year). During fiscal year 2008, Aerospace delivered 361 aircraft compared to 326 aircraft for fiscal year 2007. Aircraft delivered during fiscal year 2008 consisted of 232 business aircraft, 128 regional aircraft and one amphibious aircraft (212, 112 and two aircraft respectively last fiscal year).
Aerospace received 213 net orders during the quarter ended January 31, 2008, compared to 139 during the corresponding period the previous year. The 213 orders consisted of 154 business aircraft, 51 regional aircraft and eight amphibious aircraft (117, 21 and one aircraft respectively for the corresponding period last fiscal year). During fiscal year 2008, Aerospace received 698 net orders compared to 363 for fiscal year 2007. Net orders during fiscal year 2008 consisted of 452 business aircraft, 238 regional aircraft and eight amphibious aircraft (274, 87 and two aircraft respectively last fiscal year).
Aerospace's firm order backlog reached a record level of $22.7 billion as at January 31, 2008, compared to $13.2 billion as at January 31, 2007. The 72 percent increase reflects strong order intake in both business and regional aircraft. In business aircraft, both narrow-body and wide-body business aircraft backlogs have increased, and the order backlog for each product family remains strong. In regional aircraft, the decision to introduce the next generation version of the CRJ 700 and CRJ 900 regional jets as well as the launch of the CRJ1000 NextGen regional jet have contributed to this increase. There has also been a significant rise in the number of Q400 aircraft orders demonstrating an increased demand for large turboprops.