Bombardier shares hit new low as Fitch again downgrades Bombardier

MONTREAL – Shares of beleaguered train and plane maker Bombardier closed at a 22-year low Thursday after Fitch Ratings joined Moody’s and S&P in downgrading the company and describing its outlook as negative.

The issue fell even lower earlier in the day, bottoming at $1.41, before recovering a bit to close down four cents or 2.67 per cent at $1.46 on the Toronto Stock Exchange.

Fitch lowered Bombardier’s (TSX:BBD.B) default rating one notch to B and its long-term debt and bank facility ratings to B from B+.

The ratings agency said the downgrade reflects the company’s negative free cash flow, which the agency expects will be worse than estimated and could be significantly negative through 2017.

In the past week, Standard & Poor’s and Moody’s have also downgraded Bombardier. In February, Fitch cut its Bombardier rating to BB- to B+.

Fitch said development spending on the CSeries commercial jet remains high and that the recent decision to delay delivery of its Global 7000 business jet until the end of 2018 will add further pressure.

Bombardier will also feel pressure from production cuts for the Global 5000/6000 planes and faces additional risks from weak aircraft orders and the pace of the production ramp-up for the CSeries after it enters into service in the first half of 2016. Also of concern are potential CSeries order cancellations from Republic Airways.

Fitch estimates that Bombardier’s free cash flow usage will remain high in 2015 before declining in 2016. However, it said Bombardier’s total cash could decline in 2017 below US$2 billion compared with US$3.1 billion at June 30.

A planned public offering of a minority stake in Bombardier Transportation could improve Bombardier’s cash position. Fitch estimates the IPO could generation US$1 billion or more, which would help its liquidity but not address free cash flow concerns.

While Bombardier’s business jet operations are strong, its margins are weaker than rivals such as Gulfstream.

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