New Bombardier CEO faces financial juggling act as recession looms

Bombardier Inc.’s new CEO comes on board as the debt-laden plane-and-train maker faces a new future as a pure-play producer of business jets, a cyclical industry bracing for a potential economic storm.

The company on Wednesday named Eric Martel as its new president and chief executive, replacing Alain Bellemare effective April 6.

Martel rejoins Bombardier from Hydro-Quebec, where he has headed the provincial utility since July 2015. Between 2002 and 2015 he held a raft of senior positions at Bombardier, heading up the business aircraft division in 2014.

Martel steps into the cockpit shortly after Bombardier reached a US$8.2-billion deal to sell its rail business to French rail giant Alstom SA, casting off the Quebec company’s largest division to help pay down US$9.3 billion in debt and focus solely on private planes.

If approved by regulators, the transaction will help Bombardier slash its hefty debt by nearly three-quarters to about US$2.5 billion, capping a five-year turnaround plan that has seen the company shed numerous assets.

However, the path ahead is far from clear.

“The new CEO has a number of challenges to steer the company through over the coming two years, including navigating the current economic challenges and the potential for declining business aircraft orders, and overseeing the finalization of three assets sale deals,” said Bank of Montreal analyst Fadi Chamoun.

Those deals include the Alstom transaction – likely to face intense regulatory scrutiny in the European Union – as well as the sale of Bombardier’s aerostructures business and its CRJ regional jet franchise.

The company has already started to ramp up production of high-margin business jets, which it expects will drive double-digit revenue growth with 160 unit sales in 2020 amid a $16.3-billion backlog. But delays and “significant setbacks” have plagued several major contracts for the rail division, Chamoun noted.

“Martel’s role is to help ensure that execution takes place…and working through a number of challenged projects,” said AltaCorp Capital analyst Chris Murray. “It feels like they are rectifying those, although it’s slow.

“The next piece will be shepherding the sale of Bombardier Transportation to Alstom through the regulatory process” – essential to dealing with Bombardier’s debt load – he said. “That’s not going to be a simple process?.and likely complicated by some of the issues around COVID-19.”

Murray said that longer-term priorities should include “orderly deleveraging” and investing in the company’s three business aircraft brands: Learjets, Challengers and the large-cabin Global.

While private jets often yield higher margins, the luxury industry is more volatile than rail, where companies can tap into massive government infrastructure contracts. Reduced to a single jet-stream revenue, Bombardier may well face falling demand for new planes in the event of a broader economic slowdown triggered by the novel coronavirus pandemic.

“Those aircraft at the lower end of the business jet market, like the Learjet, are more subject to market conditions than larger-cabin, long-range aircraft, which seem to have their own market drivers,” Murray said.

“I wouldn’t expect a material change in strategy,” he added.

After Bellemare took the helm in 2015, Bombardier sold several divisions to pare down debt, including its turboprop segment and commercial airline unit, once touted as the company’s crown jewel.

Meanwhile, the rail division sale announced last month shrinks a company that 18 months ago boasted three major divisions – planes, trains and business jets – leaving it with just one at the end of a turnaround that one analyst said looked more like an asset liquidation.

The Alstom deal is expected to close next year, if EU antitrust regulators give it the green light.

“Overall, while we believe Alain Bellemare has done a decent job with the turnaround plan considering the significant challenges the company faced at the time of his arrival in February 2015, we believe investors will welcome the refreshed leadership at the corporate level in light of the stock’s recent price performance,” Desjardins Securities analyst Benoit Poirier said in a note.

Pierre Beaudoin, chairman of the Bombardier board of directors, said Martel is the right leader at the right time for Bombardier as the company focuses on business jets.

“He is an engaging builder with a deep understanding of our organization and product portfolio as well as of the global business aircraft industry,” Beaudoin said late Wednesday in a release.

The company declined interview requests with Martel and Bellemare.