Bombardier Inc has told staff in its aerospace unit to suspend discretionary spending for the rest of the year so that the Canadian company can keep cash for its costly C-Series and Learjet 85 aircraft development programs.
The world’s third-biggest plane maker said in an internal memo sent to more than 35,000 aerospace division staff on Sept. 5 that cash must be preserved for business priorities, company spokeswoman Haley Dunne said on Monday.
The “cost containment” memo, from vice-president of finance Maired Lavery, directs staff to suspend non-essential hiring, most travel and to take other measures, such as cancelling off-site meetings, suspending training, and reducing the use of consultants to save money, Reuters reports.
“We’re reminding employees that we’re in a period of peak spend on our development programs,” Dunne said.
“We need to focus our cash on the essentials of the business priorities and for the rest of the year we’re asking them to pause spend, if they can, in areas that are non-essential.”
Bombardier’s more heavily traded class B shares were down 5 Canadian cents, or 1.4 percent, at C$3.53 on the Toronto Stock Exchange at mid-session Monday.
The spending freeze will be reviewed Jan. 15, when employees return from holidays, Dunne said.
Canaccord Genuity analyst David Tyerman said a reduction in discretionary spending is “logical” given the weak economy, moderate plane sales and heavy spending at Bombardier.
“We knew that the cash flow was tight; they’ve been talking about challenges now for a while and it’s true, as they said, that they’re at a point where they’re spending a lot of money on those programs,” he said.
“It would be a concern to me if they had a difficult cash position, but they’re sitting on billions of dollars of cash. So as long as they have the strong cash position, as long as they don’t have a lot of (debt) maturities coming, then I’m pretty sure they’re going to be able to fund through to the end of the development cycles for these airplanes.”
Once Bombardier completes its major development programs, it should be in position to generate strong cash flow, he added.
Bombardier is spending about $3.4 billion to develop the C-Series plane, its biggest aircraft yet. It is currently testing plane systems and targeting a 2013 entry into service.
The price of the Learjet 85 program is not available, because that budget is included with other business jet developments, such as new Global 7000 and 8000 aircraft and the Learjet 70 and 75, Dunne said. The Learjet 85 is also set to be delivered next year.
Bombardier had $2.5 billion in cash and cash equivalents as of June 30.
Chief Financial Officer Pierre Alary said on a quarterly conference call last month that third-quarter cash flow was expected to be neutral, while fourth-quarter cash flow “should be very strong”.
Cash from aerospace operations is expected to substantially fund an expected $2 billion of investment in new programs this year, Chief Executive Pierre Beaudoin said on the conference call, repeating a previous forecast.