Concerns over Bombardier’s unexpected restructuring, layoffs

Bombardier Aerospace’s unexpected layoffs of 1,800 employees, restructuring, and retirement of its CEO has left workers and some analysts concerned, even though the changes are seen to be financially positive for the aircraft manufacturer.

The Montreal-based company announced Wednesday the layoff of non-unionized employees and the retirement of Guy Hachey as it divided the aerospace division into three units, each reporting to Bombardier CEO Pierre Beaudoin.

Even though the job cuts won’t affect unionized manufacturing employees, union representative Dave Chartrand says the change is worrying.

The outlook for the aerospace industry is positive, but Chartrand said Thursday that workers wonder if the large restructuring will eventually have ripple effects on them.

Analyst David Tyerman of Canaccord Genuity said the restructuring, which effectively removes a layer of management, should help margins at the aerospace division, which have been weak for a very long time.

He’s surprised that so many workers can be removed and wonders if there’s another shoe to drop.

Whenever a senior executive leaves so prematurely, questions naturally surface if there are factors behind the departure such as further delays for the new CSeries plane, lost sales contracts or weaker margins, Tyerman added.

In a letter to employees, Beaudoin says the division’s financial performance and execution have not met expectations, thus requiring a change.

Combined with ongoing changes at its railway division, the new aerospace structure “will enable us to be more agile and flexible to better answer current challenges and satisfy customer needs,” he wrote.

Benoit Poirier of Desjardins Capital Markets said the organizational changes raise concerns about the second-quarter results to be announced next Thursday, but should be positive for margins long-term.

He estimated the job cuts could translate into about US$136 million of annual savings and a 1.3 per cent increase to aerospace EBIT (earnings before interest and tax) margins.

Splitting the division into three will also shed more light on its revenues and margins, helping investors to better understand its growth potential and profitability drivers, he said.