By Allison Lampert and Sanjana Shivdas
(Reuters) – Bombardier said on Thursday it is cooperating with an investigation opened by the U.K. Serious Fraud Office in connection with a near decade-old sale of aircraft to Indonesian carrier Garuda, dragging down the Canadian company’s shares after an earnings-inspired rally.
Bombardier shares were down 2.54% in late morning trade, after the Serious Fraud Office confirmed the probe related to contracts and/or orders from Garuda.
Montreal-based Bombardier said in an emailed statement that it has “launched an internal review conducted by external counsel,” and “no charges were laid against Bombardier or its employees in connection with this matter.”
Last May, a former Garuda chief executive and one of his associates were convicted in Indonesia of corruption and money laundering following a series of transactions involving various aircraft manufacturers, including the sale of Bombardier’s CRJ1000 jets dating back to 2011, the company said.
Earlier in the day, Bombardier shares were up 6.1% at C$0.435 in morning trading after the company forecast higher deliveries of its flagship Global 7500 business jet through year’s end, despite missing estimates for third-quarter operating profit.
Bombardier said free cash flow usage was $706 million during the quarter, and it aims to break even during the second half of 2020.
Global 7500 deliveries should rise to 12 jets during the last three months of 2020, up from eight during the third quarter.
Bombardier is shedding assets, including its rail division to French train maker Alstom SA, to slash debt as it becomes a pure-play business jet maker.
“We are fully aware of the challenges we face,” said Chief Executive Eric Martel.
While corporate aircraft deliveries are expected to decline industry-wide by 30% in 2020 due to the pandemic, plane makers are encouraged by revived activity, including a rebound in private flights.
Martel said business jet order activity is improving, especially for its mid-sized Challenger aircraft.
Corporate jet deliveries fell to 24 units in the quarter from 31 a year earlier. But revenue from business aircraft rose about 10% since higher-priced Global 7500s made up a third of deliveries.
Bombardier’s margins and earnings before interest, taxes, depreciation and amortization (EBITDA) took a hit on higher initial production costs for the Global 7500 jets and lower deliveries.
Bombardier reported adjusted EBITDA of $176 million for the quarter ended Sept. 30, compared with $255 million a year earlier.
Analysts on average were expecting EBITDA to be $179.8 million, according to Refinitiv data.
(Reporting By Allison Lampert in Montreal and Sanjana Shivdas in Bengaluru; Editing by Aditya Soni, Anil D’Silva and Jonathan Oatis)
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