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Mon, Nov 15, 2004

Wither Bombardier?

Stock Falls To Historic Lows After Debt Rating Lowered To Junk Status

Bombardier stock fell to new lows last week after Moody's downgraded the company's debt to "junk status." A share of Bombardier stock went for more than $26 just four years ago. Today, it's worth less than a tenth of that.

While Moody's indicated falling sales was the reason for downgrading Bombardier's credit, and while the company issued strongly-worded protests, Bombardier officially says the move won't hurt long-term business.

At least some industry watchers agree. The Canadian Press quotes analyst Pierre-Yves Terrisse of Desjardins Securities as saying Bombardier has a strong enough balance sheet that the downgrade should have minimal impact. But there are other issues facing customers, he said.

A salesperson for a competitor might be more than happy to ask a customer, "Are you sure you want to be buying an aircraft from a company that has just been rated junk?" Terrisse told the news agency. "From a competitive point of view it's much more a question: Will potential customers want to award Bombardier a contract given the rating? It's an intangible hangover."

Yet, Bombardier seems financially fit to weather at least a short-term storm. The lowered rating could mean "calls on cash" of up to $431 million over the next two quarters, according to the CP. The company has $4.9 billion in liquid assets, making it a good candidate for longevity.

FMI: www.aerospace.bombardier.com

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