Bombardier Aerospace puts ‘pause’ on discretionary spending to preserve cash

MONTREAL – Bombardier’s aerospace division is putting a “pause” on discretionary spending at least until January to preserve cash for two key aircraft development programs.

In a memo to employees, the Montreal-based transportation giant said it is suspending most new hirings, cancelling off-site meetings, cutting all funding for Christmas parties and even suspending most travel.

Other measures include reducing or delaying spending on consultants, suspending most training, and stopping any office renovations. All capital spending will have to receive senior management approval.

Spokeswoman Haley Dunne says the missive sent last week from finance vice-president Mairead Lavery was meant to remind employees to be more prudent about what they’re spending on during the company’s peak period of investment.

“We’re halfway through the year so it’s just time to make sure that people are aware that they need to be focusing on our priorities,” she said in an interview.

Lavery told employees that “performance in cash generation was not in line with budget for the first six months of the year” and that the move was needed because Bombardier has limited control over when it receives cash from customers.

The company will fill positions required for the development programs, but non-essential positions will remain vacant until after January.

Bombardier Aerospace (TSX:BBD.B) last put a freeze on discretionary spending in 2009.

The world’s third-largest aircraft manufacturer is in the midst of several development projects, notably the new CSeries commercial aircraft set to begin deliveries the end of 2013 and the Learjet 85 business jet, also set to be delivered next year.

The company had about $2.5-billion in cash on June 30, but that was down from $3.4 billion six months earlier.

Chief financial officer Pierre Alary said last month during its second-quarter conference call that it expects free cash flow to be “essentially neutral” in the third quarter and “very strong” in the final period of the year.

The free cash flow last quarter was weaker than analysts had expected but Bombardier typically generates positive free cash flow in the second half of the year, especially in the fourth quarter, wrote Cameron Doerksen of National Bank Financial.

“Liquidity remains comfortable at $2.5 billion in cash and $1.4 billion in available credit.”

Dunne said the company doesn’t have a specific target amount of money it hopes to save until the freeze is re-evaluted Jan. 15.

Bombardier’s various employee groups will decide how to celebrate Christmas, but the company won’t contribute the per employee amount it normally provides, she said.

The transportation division hasn’t issued a similar spending freeze, said spokesman Marc Laforge.

“We are always reminded to be very cost conscious,” he said. “We are closely reminded every time that we have meetings together, it’s always there at the end of the meeting — remember to always be cost effective.”

The Berlin-based railway division plans to invest in tele-conferencing equipment to reduce the amount of travelling required among plants in La Pocatiere, Que., Plattsburgh, N.Y., and Thunder Bay, Ont.

Laforge said Bombardier has been unjustly targeted by some as a company with “sleeping money” that is not being spent or given to shareholders through dividends.

Bank of Canada Governor Mark Carney said many Canadian companies are sitting on huge stockpiles of cash or “dead money” that should be spent or given to shareholders through dividends.

But Laforge said Bombardier has been unjustly targeted by some.

“We need to have that money available because of the kind of business that we’re in.”

On the Toronto Stock Exchange, Bombardier shares lost five cents at $3.53 in early afternoon trading.