Bombardier pares long-time sales partner, cancels orders for large biz jets

Bombardier Business Aircraft has terminated sales and distribution agreements with its exclusive representative in 21 countries in the Middle East and North Africa, and restructured some customer commercial agreements that resulted in the cancellation of business jet orders totaling nearly $2 billion.

The moves, which are expected to improve the company’s profits over time, “don’t specifically have a Learjet impact,” Bombardier spokesman Mark Masluch said Wednesday.

But Masluch couldn’t say whether Bombardier Business Aircraft’s decision to cut sales and distribution ties with TAG Aeronautics would cause the company to look at making similar moves with other third-party sales and distribution partners.

“On that specifically, we don’t have any announcements to make at this time,” he said. “But reviewing our sales strategy is something we continually do in all regions of the world.”

The business jet unit of Bombardier Inc. that includes Learjet in Wichita announced Wednesday it has ended its sales and distribution agreements with TAG, which for nearly 40 years served as its exclusive sales representative and distributor of new Challenger and Global business jets in the Middle East and North Africa.

Bombardier Business Aircraft president David Coleal said in a news release that the termination of the TAG agreements, in addition to other company initiatives, “will increase our long-term profitability.”

“Our sales team is well equipped to increase our position in the marketplace, and ultimately, we expect our current industry-leading backlog to become even stronger,” Coleal said in the release.

Coleal’s unit also announced that it restructured some customer commercial agreements that resulted in the cancellation of 24 firm orders — valued at $1.75 billion at 2015 list prices — and 30 optional orders. Masluch said Learjet was not affected by the order cancellation because the orders were for “large category aircraft.”

The company added that it thinks it can sell the positions on those business jet orders at a better profit margin. Masluch said the restructuring of the customer commercial agreements was not directly related to TAG.

It “goes beyond TAG,” he said.

But termination of the TAG agreements and restructuring of customer agreements will cost the company $278 million in pre-tax special charges in the fourth quarter of 2015. Bombardier said $145 million of that charge will be non-cash, and $133 million will be cash. Bombardier said $50 million in cash “was disbursed” in the fourth quarter, and the remaining $83 million will be paid in 2016.

Masluch said the company wouldn’t disclose details of the cash payments, such as how much was for the cancellation of jet orders and how much was going to TAG.

Two financial analysts who follow Bombardier were neither surprised nor disappointed by the announcements.

“The changes announced this morning on going more direct within the sales channel supports new management’s view to focus on pursuing profitable deals vs. market share,” Peter Arment of Sterne Agee CRT wrote.

Cowen and Co. analyst Cai von Rumohr called the business jet distribution restructuring “a plus.”

“We view the restructuring of bizjet distribution, which entails a Q4 special charge of $278 (million), as a plus apt to boost longer term profitability of Bombardier’s mainstay franchise at a moderate near-term cost,” von Rumohr wrote.

This story was originally published January 13, 2016 at 11:02 AM with the headline "Bombardier pares long-time sales partner, cancels orders for large biz jets."