Fitch Rates Bombardier's Senior Unsecured Notes 'BBB-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 15, 2004

Fitch Ratings has assigned 'BBB-' ratings to Bombardier Inc.'s (BBD) 6.3% notes due 2014 and 7.45% notes due 2034. Both issues are denominated in U.S. dollars and will be issued under Rule 144A. Fitch also affirms the 'BBB-' rating on BBD's existing senior unsecured debt and bank facilities, the 'BB+' rating on BBD's preferred stock, and the 'F3' rating on BBD's commercial paper. Additionally, Fitch affirms the 'BBB-' rating on Bombardier Capital's (BC) senior unsecured debt. Due to the existence of a support agreement and demonstrated support by the parent, BC's ratings are linked to those of BBD. The Rating Outlook is Stable for all classes of debt at BBD and BC.

Proceeds of the newly issued notes will be used for general corporate purposes. Fitch estimates that the proceeds will allow BBD to maintain healthy cash balances in fiscal 2005 (F2005), while leaving the company's bank facilities available for the possible issuance of letters of credit for new Bombardier Transportation (BT) contracts. Fitch expects BBD to use some cash in F2005 to repay BC advances (which Fitch treats as debt) so that BC will be able to pay debt maturities. Overall, the new notes will strengthen BBD's liquidity position, but they will cause credit statistics to weaken due to the higher gross debt levels.

The ratings are supported by significant progress on BBD's multi-year restructuring plan, leading market positions, the more conservative strategy at BC, the large backlog at BT, new senior management, and the cost cutting actions at both Bombardier Aerospace (BA) and BT.

Rating concerns include recent financial performance at BT, continued low operating margins and free cash flow, the potential need for further restructuring actions, the uncertain timing of margin improvement, the impact of exchange rate fluctuations on financial results and planning, and the sizable pension deficit. Fitch also has several concerns related to the regional jet (RJ) operation, including the declining backlog and its potential impact on longer-term RJ production rates, competitive pressures from Embraer's new 70-100 seat aircraft family, the cash requirements of a possible 100-seat aircraft program, the weak aircraft financing market, and backlog risks related to the weak financial conditions of several large airline customers.

The Stable Outlook reflects an improved liquidity condition, the level of BBD's credit statistics compared to those of other companies at the 'BBB-' level, the potential for BBD to improve credit statistics with only modest cost reductions, and the completion of the company's recapitalization, which included approximately C$2 billion of proceeds from equity sales and divestitures. The Outlook also reflects more clarity for near-term RJ deliveries and the apparent stabilization in the business jet market, although at low production rates.

Accounting for BC using the equity method, BBD's liquidity position at Jan. 31, 2004, was approximately C$3.7 billion, consisting of C$2.1 billion of bank line availability and C$1.6 billion of cash. Leverage (Debt to EBITDA) for F2004 excluding BC was 2.8 times (x) versus 3.2x for F2003. Interest coverage was 4.6x in F2004 compared to 4.1x in F2003. These calculations treat Bombardier Recreational Products (BRP), which was sold in December, as a discontinued operation. Fitch estimates that including BRP's results in the calculations would have caused both leverage and interest coverage to be flat year over year. The debt numbers used in the above calculations include C$776 million of advances from BC. Some of the advances from BC are loaned to BBD on a subordinated basis (C$597 million), and the subordinated advances are not included in the covenant calculations for BBD's credit facilities. With net debt to capital of 29.4% at year-end, BBD was below the 50% covenant level.