Bombardier brings in relief pilot to turn around the company, suspends dividend

MONTREAL – Bombardier is undergoing another executive shakeup, this time switching its chief executive and chairman as it adjusts to the soaring cost of the new CSeries passenger jet.

Laurent Beaudoin — a member of the family that has controlled the company since it was founded — will be replaced as chairman of the board by his son Pierre, who is stepping down as CEO after nearly seven years.

Alain Bellemare, who spent 18 years at United Technologies Corp. including at its Pratt and Whitney division, becomes Bombardier’s president and CEO effective Friday.

“What’s important is that we ensure the company’s financial health in the long term. This is a jewel in Quebec and Canada,” Bellemare, 53, said in a conference call with analysts Thursday.

Pierre Beaudoin said he called Bellemare just after his departure from UTC was announced Jan. 15 but denied the call was in response to investor criticism of Bombardier’s management in light of program delays and cash concerns.

Beaudoin, 52, said he will be a full-time chairman focused on merger and acquisition opportunities and finances. He will work closely with Bellemare but rejected suggestions he would effectively be a co-CEO.

Benoit Poirier of Desjardins Capital Markets said Bellemare’s arrival will be well received by investors “because of the street’s lack of confidence in current management and Bellemare’s strong background.”

The changes came as the company said it lost $1.59 billion or 92 cents per share in its fourth quarter compared with a profit of $97 million or five cents per share a year ago. Revenue totalled $5.96 billion, up from $5.32 billion in the fourth quarter of 2013.

The loss for the quarter included a $1.4-billion charge related to a pause of its Learjet 85 program announced last month.

Company executives also disclosed during a conference call Thursday that the CSeries program’s cost has soared to US$5.4 billion from US$4.23 billion a year ago following a four-month delay in flight tests because of an engine failure. The aircraft is scheduled to enter into service by year-end.

Bombardier also announced that it will suspend dividend payments and will seek shareholder permission to issue US$600 million in new shares and about US$1.5 billion in debt to bolster its cash reserves.

It will work at reducing debt by seeing if some operations to participate in industry consolidation.

“It’s not that there is a business segment that is for sale,” Pierre Beaudoin said. “We are world leaders in many sectors and sometimes it’s time to see if there’s a way to team up to be an even stronger world leader.”

Meanwhile, Moody’s Investors Service downgraded the company’s corporate family rating a notch to B1 from Ba3 and affirmed the company’s speculative grade liquidity rating at SGL-3. Bombardier’s long-term ratings remain under review for possible downgrade, it added.

“We lowered Bombardier’s ratings to B1 because we view its planned increase in debt and ongoing execution challenges with continuing elevated free cash flow consumption as inconsistent with a Ba3 rating,” said Darren Kirk, Moody’s vice-president and senior credit Officer.

“We are continuing our review until we gain confidence that Bombardier will successfully raise $1.5 billion in debt and $600 million in common equity to boost its liquidity.”

David Tyerman of Canaccord Genuity says it is widely expected on Bay Street that Quebec’s pension fund giant, the Caisse de depot, will get involved in Bombardier’s new financing.

The Caisse declined to comment. It held $271 million worth of Bombardier shares as of the latest annual report of Dec. 31, 2013.

The company says the recapitalization plan will be supported by the Bombardier-Beaudoin family — which has been led by Laurent Beaudoin for more than 50 years. However, there are no plans to end the multi-voting shares that ensure the founding family retains control.

On the Toronto Stock Exchange, Bombardier (TSX:BBD.B) was the most actively traded issue Thursday, closing down 35 cents or 11.5 per cent at $2.69 on volume of 40.8 million shares.