MONTREAL – Bombardier is permanently laying off 1,700 employees in its aerospace division, mostly in Montreal, as it steps up efforts to cut costs amid delays with two new aircraft and a tough market for both commercial and business planes.
The company disclosed the decision to its workforce in an internal memo that says affected employees will be notified in the coming weeks.
Human resources vice-president Sylive Bourdon said despite encouraging economic signs, challenges facing the aerospace industry require prudence by management to ensure Bombardier’s long-term success.
“Consequently, stricter controls over spending must be implemented to ensure we consistently meet our budget throughout 2014,” she wrote.
The measures are on top of cost-saving efforts in place since 2012.
Bourdon said the latest cuts will help offset billions of dollars spent to develop the CSeries, Learjet 85, Global 7000 and 8000, along with plant improvements.
Dave Chartrand of the Machinists union said the positions being cut over the next few months include 300 contractors, hundreds of engineers, temporary employees and others hired to work on special projects.
“There are guys that will be recalled but for now, between the programs that have been slowed down and the CSeries, there is a period where there will be a little less work,” Chartrand said in an interview.
The announcement Tuesday follows several recent setbacks for Bombardier, which is the world’s third-largest aircraft manufacturer after Boeing and Airbus.
It announced last week that its new CSeries commercial jet won’t be ready for service until the second half of 2015, several months later than its already-delayed previous goal. The first flight and delivery of the Learjet 85 has also been delayed.
On Monday, Bombardier said it received 19 per cent fewer new orders for commercial and business aircraft last year than in 2012.
Bombardier spokeswoman Haley Dunne said Tuesday’s decision is the result of a variety of factors and is not specifically tied to the CSeries delay.
“It’s across the business,” she said in an interview.
The layoffs represent less than five per cent of the more than 35,000 global workforce at Bombardier Aerospace, one of the company’s two main divisions. Bombardier is also the world’s largest producer of rail equipment for transit systems.
About 1,100 of 22,200 Bombardier Aerospace employees in Canada are affected by the pending layoffs, about 80 per cent of them in Montreal.
In the United States, about 600 of 5,700 positions are affected. These include 200 contractors whose positions ended in December and 350 positions at the Learjet plant in Wichita, Kan. Some of the 300 employees who were temporarily laid off for two weeks could now face permanent layoffs.
The positions being cut involve contractual, permanent, unionized and management positions in assembly, engineering, sales, service, after-sales and other support functions.
Bombardier said it won’t detail what jobs and locations will be affected until employees are notified. None of the cuts affects employees in Mexico or Northern Ireland.
Bourdon said some of the employees may have a chance to fill several hundred vacant positions and vowed to work with its unions to reduce the impact on staff.
“We are fully aware of the implications this downsizing will have on affected workers, their families and colleagues. We are committed to ensure that all employees will be treated with fairness and respect.”
Bombardier has a history of cutting jobs during difficult market periods and then hiring back workers when demand improves. It will also be hiring hundreds of new workers to assemble the CSeries at its facility being built in Mirabel, north of Montreal.
David Tyerman of Canaccord Genuity said the efforts could save between $85 million and $170 million a year in wages and help to mitigate the liquidity strain the company faces as it prepares to build inventories next year.
“It makes a lot of sense what they’re doing because they’re protecting the profitability of the company and the ability of the company to execute on its game plan of launching these new products,” he said in an interview.
The analyst said the layoffs also signal that Bombardier doesn’t expect a market recovery any time soon.
“I think this says that it’s going to go on for awhile.”
Walter Spracklin of RBC Capital Markets said most of the layoffs in Montreal will be coming from the CSeries program while U.S. layoffs will be focused on the Learjet program.
“The CSeries program appears to be structurally complete and there is little reason to have mechanical engineers on payroll when the delay is centred on software integration issues. On the Learjet division, with still no real visibility on the upturn in the light cabin business jet segment, Bombardier can scale back its sales force appropriately,” he wrote in a report, adding there was likely excess employees from the completed conversion to the Learjet 70/75.
He said the job cuts are symptomatic of Bombardier’s debt and heavy CSeries investments through at least 2016.
On the Toronto Stock Exchange, Bombardier’s shares were off eight cents, or nearly two per cent, at C$4.03 in Tuesday afternoon trading.