Bombardier announced the sale of its Q Series line on November 8 as part of its continuing mission to cut costs and refocus its efforts on its profit-making business jet unit. The sale of the Q Series programme, which covers all assets and intellectual property and Type Certificates associated with the Dash 8 Series 100, 200 and 300 as well as the Q400 program operations at the Downsview manufacturing facility in Ontario, as well as the de Havilland trademark, was bought by, Viking Air, a wholly owned subsidiary of Longview Aviation Capital Corp. for approximately $300 million. Bombardier also announced the sale of its business aircraft’s flight and technical training activities to CAE for approximately $800 million. Both transactions are expected to close by the second half of 2019.
Bombardier had been expected to sell its Q400 programme following the sale of the Q400 manufacturing plant in Toronto in May. Longview Aviation Capital chief executive, David Curtis, described the Dash 8 turbo-prop as the “perfect complement” to the company’s existing portfolio of specialized aircraft including the Twin Otter and the Canadair CL 215 and 415 series of water bombers. He added: “We see enormous value in the de Havilland Dash 8 program, with these aircraft in demand and in use all around the world.”
Upon the closing of the transaction, Longview will also assume responsibility for the worldwide product support business – covering more than 1,000 aircraft either currently in service or slated for production.
Longview will continue to independently operate the program at the original de Havilland manufacturing site located at Downsview, Ontario upon closing of the transaction. The Downsview site was sold by Bombardier earlier this year but, under the terms of a lease with the new owners and a license from Bombardier, production will remain on-site until at least 2021. The company also stated that as part of the transaction it will also “welcome” Bombardier employees currently associated with the production, support and sales of the Dash 8 program.
“We are committed to a business-as-usual approach that will see no interruption to the production, delivery and support of these outstanding aircraft,” said Curtis, adding that Longview and Bombardier will work “closely in the period until the closing of the transaction to ensure a seamless transition for employees, customers, suppliers and other stakeholders with no interruption in production, delivery and support of the aircraft”.
CAE’s acquisition of Bombardier's Business Aircraft Training (BAT) business includes a fleet of full-flight simulators (FFSs) and training devices covering the Learjet, Challenger and Global product lines, including the latest large cabin Global 5500, 6500 and 7500 business jets. The company projects that in its first year following the closing of the transaction, the acquisition will provide CAE high single-digit percentage earnings accretion. CAE figures show that the acquisition enterprise value of Bombardier's BAT business represents a multiple of approximately nine times one-year forward EBITDA. In addition to the agreement to acquire Bombardier's BAT business, CAE has agreed to pay $155 million to monetise its existing future royalty obligations under the current Authorized Training Provider (ATP) agreement with Bombardier. This also involves the extension of CAE's ATP agreement to 2038.
"This transaction represents a win-win for both companies, resulting in enhanced core focus,” said Marc Parent, CAE's President and CEO. “We look forward to having increased addressability in the large market of Bombardier business jet operators, and to providing customers with a world-class training experience. Market fundamentals in business aviation are strong and the business we are acquiring is well-supported by a large installed base. We are expanding our position in the largest and fastest growing segment of business aviation training at an opportune time."
The Bombardier BAT business will be integrated smoothly with CAE since its operations are already co-located within CAE's Dallas and Montreal training centres.
CAE is financing the acquisition with a combination of cash on hand, drawing on its existing bank facility and new committed term loans. TD Securities acted as exclusive financial advisor to CAE.
Following the divestment of the Q Series and BAT, Bombardier confirmed that It is evaluating sale opportunities for the CRJ series.
“Following the closing of the Airbus partnership on the C Series aircraft program earlier this year, and the agreement to sell the Q400 program announced on November 7, 2018, our full attention is turning to the CRJ program… As we look to return the CRJ to profitability, we will also explore strategic options for the program,” said the company in its third quarterly earnings release.
Bombardier also launched an “enterprise-wide productivity program”, which the company says will generate annual savings of $250 million by 2021, primarily due to the redeployment of its central aerospace engineering team, mostly moving to the business aircraft unit and loss of 5,000 employees over the next 12 to 18 months.
For the quarter, Bombardier’s revenues reached $3.6 billion, representing 3% organic
growth year over year. Gross profit grew by 48% year over year to $271 million. For its commercial aircraft, EBIT was near the breakeven point.
For the full year, Bombardier expects revenues of approximately $16.5 billion, at the low end of its guidance range.
Bombardier also highlighted the certification of the Global 7500 business jet during the reporting period, which is due to enter into service in December 2018, marking the end of the investment cycle for that aircraft.
The company announced new members of its leadership team also, appointing Danny Di Perna as president of Aerostructures and Engineering Services (BAES), and Michael Ryan as chief operating officer for BAES.
Bombardier is now targeting revenues to grow by approximately 10% to $18 billion or more, as deliveries of the Global 7500 business jet accelerate, with profitability is anticipated to grow with EBITDA anticipated to increase by approximately 30% to a range of $1.65 billion to $1.8 billion.
“With our heavy investment cycle now completed, we continue to make solid progress executing our turnaround plan,” said Alain Bellemare, President and Chief Executive Officer, Bombardier. “With [these] announcements we have set in motion the next round of actions necessary to unleash the full potential of the Bombardier portfolio. During the earnings and cash flow building phase of our turnaround, we will continue to be proactive in focusing and streamlining the organisation and disciplined in the allocation of capital.”