UPDATE 4-Bombardier to continue Global 7500 jet ramp-up, as cash flow slips

(Adds CEO comment from media call)

May 7 (Reuters) - Bombardier Inc on Thursday said it will ramp up production of its flagship Global 7500 corporate jets, but its shares slipped 12% in afternoon trading as the company forecast a large negative cash flow due to pandemic-related delivery delays.

Montreal-based Bombardier will become a “pure play” business jetmaker when it completes the expected sale of its rail division next year to France’s Alstom SA.

Corporate jet deliveries are forecast to fall this year by around a third as the coronavirus pandemic keeps communities in lockdown and businesses shut, disrupting global travel and slowing economic activity.

Chief Executive Eric Martel said during a media call that Bombardier has held talks with different governments over possible “temporary aid,” although no decision was taken.

Earlier, Bombardier reported negative free cash flow of $1.6 billion for the first quarter and said it expects a similar number during the second three months of the year, when business is anticipated to hit a low point.

Chief Financial Officer John Di Bert said he expects free cash would start to break even or turn positive during the second half of 2020.

Bombardier, which suspended its 2020 guidance in March, did not provide a new forecast for corporate aircraft deliveries.

Martel said he expects Bombardier to deliver “a few less” of the 35 to 40 Global 7500 jets originally planned for 2020 and will continue its ramp-up of the $73 million plane.

Bombardier expects to increase Canadian production in May as the province of Quebec slowly reopens its economy.

Di Bert told analysts the company expects a loss in earnings before interest and taxes (EBIT) and lower revenues during the second quarter.

“We are expecting a reduction of our production and deliveries and therefore revenues by almost half versus the same quarter last year,” he said.

Bombardier said its aviation unit suffered a significant slowdown in orders in March, leading to a $13.6 billion business aircraft backlog at the end of the quarter, down from $14.4 billion.

Adjusted EBITDA margins at Bombardier’s aviation unit fell to 6.7% in the first quarter from 14.3% a year earlier.

The company’s adjusted earnings before interest, taxes, depreciation, and amortization fell 35.7% to $171 million from $266 million a year earlier.

Analysts on average had expected adjusted core earnings of $172.4 million, according to IBES data from Refinitiv.

In a note, Cowen analyst Cai von Rumohr said weak quarterly results were no surprise, but called the larger-than-expected $1.6 billion outflow “an issue.”

Reporting by Allison Lampert in Montreal and Sanjana Shivdas in Bengaluru; Editing by Maju Samuel, Bernadette Baum and Steve Orlofsky