Sales slump threatens Bombardier debt ratings

 - May 9, 2008, 7:20 AM

Low demand for corporate aircraft and small airliners has led New York-based financial advisor Moody’s Investors Service to review, and possibly downgrade in
the next two months, certain Bombardier debt ratings. Bombardier Aerospace’s intermediate-term earnings and cash flow could be constrained by any adverse market effects, according to Moody’s corporate finance group senior vice president Tassos Philippakos.

The exercise takes account of “the weak business jet market and the potential for pressures on [Bombardier’s] currently healthy regional jet (RJ) business as a result of deteriorating performance of U.S. airlines, which [represent] a large part of its RJ backlog.” While the down cycle is expected to be less severe for the RJ market than for the overall commercial aircraft business, analysts are considering how airline difficulties could alter future delivery forecasts. They also note that continued pressure on aircraft prices could damage Bombardier’s aircraft portfolio.

Moody’s review takes into account Bombardier’s plans to raise $5 billion by liquidating parts of Bombardier Capital, namely selling and winding down its business aircraft finance and receivables factoring portfolios. The manufacturer plans to have generated $2.5 billion of free cash flow in the six months to the end of next month. If it is successful, Bombardier will have significantly reduced its exposure in
an “historically under-performing finance business,” noted Moody’s. The financial-advice firm acknowledges Bombardier’s “strong market position, strong [second-half] cash flow [and] significant undrawn bank credit facilities.”