Bombardier profit warning sparks 25% share price fall

Bombardier shares dropped more than 25 per cent on Thursday after a profit warning sparked concerns about whether the world's third-largest commercial jet maker would be able to fund its investment programmes.

The Montreal-based company - which is also the world's biggest maker of passenger trains - warned that profit margins in its aerospace and train-making businesses for 2014 would be lower than previously expected.

It also said it was "pausing" development of its Learjet 85 business aircraft because of weak demand.

Analysts on a conference call focused on how projections of lower-than-expected cash flow for 2014 would affect Bombardier's ability to fund its development programmes.

Bombardier's B shares - the most widely-traded - were down 26.3 per cent at C$3.05 at lunchtime in Toronto.

The company, which reports all of its figures in US dollars, is part way through an ambitious effort costing more than $4bn to enter the short-haul commercial jet market with its C Series aircraft. It is also working on new, long range Global 7000 and Global 8000 business jets.

Pierre Beaudoin, chief executive, said repeatedly on the conference call that Bombardier had sufficient capital to continue funding these programmes. The company has $2.4bn in cash and cash equivalents and $1.4bn in available lending facilities.

Mr Beaudoin said of those resources: "We feel that, combined with the cash flow from operations, we have sufficient funds to finance our development operations."

Bombardier is planning to complete regulatory certification of the C Series - which was originally meant to enter service in 2013 - by the second half of this year. The aircraft made its delayed maiden flight in September 2013.

The company said it would take a $1.4bn charge for the costs of the "pause" in development of the Learjet 85, which it blamed on the continued weakness of demand for business jets.

Demand for corporate jets since the 2008 economic crisis has been heavily skewed towards the largest aircraft, such as Bombardier's Global 6000 and Cessna's Gulfstream 650.

The company also said it would make redundant 1,000 workers in Mexico and Wichita, Kansas, who had been working on the Learjet 85 programme. Mr Beaudoin said the programme could be restarted if conditions in the midsize business jet market improved.

Profit margins at the level of adjusted earnings before interest and tax - a measure that excludes certain one-off costs - would be 4 per cent in aerospace for 2014, rather than the previously expected 5 per cent, the company said.

In train-building, margins would be 5 per cent, down from 6 per cent. Group cash flow from operating activities would be $800m in 2014, rather than the previously expected range of $1.2bn to $1.6bn.

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