Bombardier Inc. of Montreal could be forced to lay off more workers and further reduce aircraft production after it cancelled two large contracts for commercial and business jets, say industry observers.
The world's largest business jet manufacturer lost one of the largest orders in its history with its decision to cancel an order worth up to US$1.5 billion following the insolvency of private European company Jet Republic.
The Montreal-based plane and train maker said the cancellation affects a firm order for 25 Learjet 60 XR aircraft, valued at US$340 million, along with options to purchase 85 more. First delivery to Jet Republic was scheduled for October, with 14 more in 2010.
"This is an unfortunate business decision and it's especially unfortunate for the Learjet team, however, we're working closely with them to re-energize sales and move forward," spokeswoman Danielle Boudreau said.
Recession pain
Like all aircraft manufacturers, Bombardier is seeing a slowdown in orders caused by the recession and global financial crisis. It plans to layoff 4,360 employees by Jan. 31, including 820 at the Wichita, Kan., plant where all Learjets are assembled.
The Jet Republic cancellation marks the second time in about a week that Bombardier has taken the dramatic step. It previously cancelled an order for 15 remaining CRJ1000s from Italy's My Air, which also faced financial problems. The original 2006 order for 19 planes was worth about US$750 million.
Boudreau said the company remains committed to the mid-size aircraft, but wouldn't say if it will further reduce production rates. A decision could be announced at its second-quarter results on Sept. 2.
Analysts divided
Bombardier has said it expects overall business jet deliveries will fall 25 per cent this year, but analysts are divided on whether the worsening situation will cause deeper production declines, especially in the small cabin Learjets.
