(The Canadian Press circulated the following story by Allan Swift on June 1.)
MONTREAL — Bombardier Inc. is holding its annual meeting today at an awkward moment for the giant transportation equipment manufacturer and its star chief executive, Paul Tellier.
Although Tellier has cut about 10,000 jobs and taken other drastic measures to turn around the company since he was brought in as CEO 18 months ago, Bombardier reported worse-than-expected first-quarter results last week.
One analyst said Bombardier’s stock has been supported by Tellier’s reputation, and now the love affair may be over.
Tellier, who headed Canadian National Railway for a decade before joining Bombardier, admitted in a conference call last week that the turnaround has been a lot slower than he projected, but he asked nervous shareholders to “be patient.”
But Steve Laciak of National Bank Financial has told his clients that the stock’s rally over the past year, partly due to confidence in Tellier, was “totally divorced from reality.”
From a low of $3.25 in April, 2003, compared with a peak of $25 in 2000, the stock made a comeback to $7 last February, defying Laciak’s projections.
“Some U.S. and Canadian investors have bought irrespective of (low) earnings on the belief that … Tellier was a turnaround artist and he would be instrumental in returning Bombardier to its past glory,” Laciak, who tends to be more pessimistic on the stock than other analysts, wrote in a report.
After reporting two quarterly “negative surprises, investors need to look at the underlying business and forget the CEO’s reputation,” Laciak added.
Laciak and other analysts were not reassured by $200 million (U.S.) in cost overruns on contracts with Bombardier’s Europe-based rail division that led to the $174-million loss for the first quarter, compared with a profit of $54 million a year earlier. Revenue rose to $3.5 billion from $3.3 billion.
Analysts also point to a declining orders backlog for regional jets. Tellier announced 500 more workers will be cut this summer from regional jet manufacturing plants in Montreal.
Orders are slow for Bombardier’s 70-seat and 86-seat regional jet models, while Brazillian rival Embraer racks up orders for its 190, a 90- to 108-seat model to enter service in 2005.
Analysts say a new larger Bombardier aircraft family of 100 seats could help bolster sales, but this option is only at the study stage.
On the brighter side, sales of business jets are recovering, a market in which Bombardier has the largest model offering.
Analyst Cameron Doerksen of Dlouhy Merchant notes that 40 per cent of Bombardier Aerospace’s undelivered regional jet orders are placed with financially troubled US Airways and Delta Airlines.
On the plus side, Doerksen said Bombardier has a strong balance sheet with $1.7 billion (Canadian) on hand.
“We see little risk that the rating agencies will downgrade the company below investment grade, unless one of their major airline customers files for Chapter 11,” Doerksen said.