It’s been a busy March for Bombardier (TSX: BBD.B) in terms of good and bad news flowing into the company, and there’s still a week and a bit to go.
The good
Bombardier has just updated its 2016 revenue forecast and the numbers are looking better for the company. Despite the set backs in the CSeries aircrafts the company is predicting revenues in 2016 to be between $23 billion and $25 billion. Bombardier also believes that with these numbers, total revenues could reach $30 billion within the next five years. This is significant growth compared to 2013 when revenues reached $18.2 billion, and is tracking to hit $20 billion this year.
Another source of good news has come in a new contract to be one of four suppliers for South African state-owned rail company “Transnet Freight Rail”. The total deal is for the purchase of 1,064 locomotives priced at $5.16 billion. Bombardier’s share of the contract is for 240 electric locomotives (exact price has not been disclosed), which will be built in South Africa.
Finally, Bombardier has reported that it is currently sitting on a record backlog of orders that have booked up at least four years of manufacturing capacity.
The bad
With the growing tension between Russia, Ukraine and the west, the talk of sanctions may work against Bombardier’s plans in the region. The joint venture that is facing the greatest risk has to do with final assembly operations for the Q400 turboprop aircraft.
Last year, Bombardier secured a U.S. $3.4 billion agreement with Rostec (an industrial & defense conglomerate) and Ilyushin Finance Co (leasing firm) for 100 Q400 aircrafts. Threats of sanctions could not only affect the final assembly process but also the entire deal. Bombardier expects that it can procure orders of up to 350 additional Q400 aircraft from Russian and C.I.S. (former soviet states) companies in the near future (speculated before the annexation of Crimea).
The cost of the delays of the CSeries aircraft continues to mount and eat up available cash flow. The latest domino to fall comes in the announcement released on March 7 that Bombardier would be freezing salaries on approximately 38,000 non-unionized workers spread over all of its divisions, including HQ in Montreal for an undetermined amount of time.
The ugly
Bombardier has been accused — along with 18 other companies — by the Brazilian government of price fixing public contracts. The Brazilian antitrust agency will be investigating the bidding process for contracts on the subway and train systems in Sao Paulo, Brasilia, Belo Horizonte, Porto Alegre and Rio de Janeiro; the project is worth U.S. $4 billion. Bombardier is co-operating with authorities as they investigate the matter, and Bombardier assures that no foul play was involved in its operations.
Foolish bottom line
Whether or not Bombardier is innocent or guilty, the situation remains to be an unwanted bump in an already roller coaster of a ride in 2014. But the good may finally be edging out the bad for the company as the CSeries begins its next round of test flights in April and its backlog of orders continues to grow.
