(Bloomberg) -- Bombardier Inc. fell the most on record after warning of disappointing fourth-quarter sales and revealing that it may exit a joint venture with Airbus SE that makes the A220 jetliner, potentially triggering a major writedown.
A ramp-up in A220 production will require additional cash investment, pushing back the break-even point and generating lower returns across the lifetime of the project, Bombardier said in a statement Thursday. The value of the A220 joint venture is likely to be diminished and the amount of any accounting charge will be disclosed with full 2019 results next month, the company said.
The potential end of Bombardier’s involvement in the A220 program is combining with new stumbles in the company’s rail business to undermine a once-great name in manufacturing -- just when investors thought they were poised to reap the rewards of a difficult turnaround effort. Walking away from the A220 would close the book on Bombardier’s involvement in an aircraft program in which the company invested more than $6 billion.
“The joke continues. Anyone involved with the story has a gun to their head,” said John O’Connell, chief executive officer of Davis Rea Ltd., who doesn’t hold Bombardier shares or bonds. “This company has been a disaster my whole career and I’m almost ready to retire.”
Bombardier plunged 30% to C$1.25 at 12:56 p.m. in Toronto after sliding as much as 39% for the biggest intraday tumble on record. That dragged shares to the lowest level in almost four years.
The company’s 7.85% bonds due 2027 fell 6.2 cents, the most on record, to 96 cents on the dollar, yielding 8.6%, according to Trace data. The $1.5 billion in notes due 2025 dropped 3.9 cents to 98.1 cents on the dollar to yield 8%, the highest since Oct. 31.
Bombardier, which is refocusing its operations on rail equipment and business jets, said fourth-quarter sales would be $4.2 billion, trailing the lowest analyst estimate in a survey by Bloomberg.
The results were dragged down in part by new challenges in the company’s faltering rail division, which generates about half of sales. The business got a black eye this month when New York removed 300 Bombardier-made subway cars from service because of door glitches. For the fourth quarter, the manufacturer said it would take a $350 million accounting charge because of problems in London, Switzerland and Germany.
The timing of milestone payments also clipped results late last year, Montreal-based Bombardier said. So did the delay of some deliveries of the Global 7500 business jet into the first quarter of 2020.
Liquidity remains strong, with year-end cash on hand of roughly $2.6 billion, Bombardier said. But the company is considering alternatives to accelerate debt reduction and strengthen its balance sheet. Full results are scheduled for Feb. 13.
“The final step in our turnaround is to de-lever and solve our capital structure,” Chief Executive Officer Alain Bellemare said in the statement. “We are actively pursuing alternatives that would allow us to accelerate our debt paydown.”
Trouble is, Bombardier may be running out of sizable assets to sell to meet its cash needs, said Bloomberg Intelligence analyst George Ferguson.
“Bombardier needs to get its rail business -- the earnings and cash-flow driver -- on track, while restructuring its aviation division in a soft business-jet market,” he said in a report.
The potential end of Bombardier’s involvement in the A220 program would cap the company’s broader retreat from commercial-plane manufacturing.
Bombardier ceded control of the A220 last year to Airbus for no upfront cash. The plane -- originally known as the C Series -- won praise for its fuel-efficient engines, composite wings and large windows. But the program ran more than two years late and about $2 billion over budget, and Bombardier had trouble finding buyers in an industry dominated by Airbus and Boeing Co.
Airbus said it would continue funding the A220 program “on its way to break-even.” The European aerospace giant owns a 50.01% stake in the regional jet, with Bombardier retaining 31% and state-backed Investissement Quebec holding some 19%.
The jet added 63 orders in 2019, with 105 currently in service and a backlog of close to 500 planes. Airbus will begin producing the A220 on a second assembly line this year at its factory in Mobile, Alabama.
Bombardier agreed last year to sell a plant in Belfast, Northern Ireland, that makes wings for the A220. The buyer, Spirit AeroSystems Holdings Inc., is seeking to boost its exposure to Airbus programs after suffering as a supplier to Boeing’s grounded 737 Max.
The Canadian company also agreed to sell its regional-jet program to Mitsubishi Heavy Industries Ltd.
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