Quebec gives US$1 billion lifeline to Bombardier

Move aimed at restoring customer faith in CSeries commercial jet program

Mark Blinch/Reuters

Mark Blinch/Reuters

MONTREAL – Bombardier says a US$1 billion lifeline from the Quebec government will help complete development of the CSeries and restore customer faith in the delayed and costly commercial jet program.

Chief executive Alain Bellemare said the cash injection from the province, which will become a new joint venture partner, will be well-received by customers.

“It’s all about giving confidence that the CSeries will be there and that Bombardier will be there to support these programs that are going to be in service for many, many years,” he said Thursday in a conference call to discuss the company’s weak third-quarter results.

The Montreal-based company posted a US$4.9-billion loss, tied mostly to large writedowns in the CSeries and the abandoned Learjet 85 business jet programs, along with operating results that were substantially below already low expectations.

Bombardier (TSX:BBD.B) says it will also investment large sums to complete the CSeries, which is about two years behind schedule.

Up to 20 of the aircraft will be produced next year as Bombardier ramps up to full production in three to four years, the company said.

Bombardier plans to transfer the CSeries program to a new partnership to be chaired by former Quebec premier Daniel Johnson that’s 50.5 per cent owned by the company and 49.5 per cent owned by the province. The deal includes warrants that allow Quebec to purchase up to 200 million Class B shares representing about 8.9 per cent of outstanding shares.

Premier Philippe Couillard described the financial contribution as an investment, not a subsidy, in an important driver of the provincial economy that employs more than 18,000 employees in Quebec.

“I want to remind all Canadians that aerospace is as important to Quebec as the automotive sector is for Ontario. It is quite normal that the state gets involved,” he said in Quebec City.

The CSeries has been an expensive and difficult project for Bombardier, which says the jetliner is about 97 per cent of the way through final testing — one of the last steps before the planes can be put into service.

Bombardier says it will continue to operate the CSeries business and include its revenues and losses in the company’s overall financial reports.

The Learjet 85 program — already put on hold so Bombardier could focus more resources on the CSeries — has now been cancelled completely due to a lack of sales, the company said.

It’s also continuing efforts to sell a minority stake in its rail equipment business, Bombardier Transportation, which sells subway cars and other mass transit systems.

Bellemare conceded that Bombardier has been overwhelmed by too many development programs but is taking the right decisions to ensure success.

Asked how investors can have confidence in a company that continues to be overseen by the same board of directors, he said he can’t change the past.

“(But) I feel we have the leeway to drive the business and take the right and the best decisions for long-term success of the organization,” he told analysts.

Bombardier is the only company in the world that is a major player in both the aerospace and rail industries, each with global operations.

Bellemare was brought into the company as president and CEO earlier this year with a mandate to lead Bombardier through a difficult transformation.

The third-quarter results include a number of items related to that process, as well as an accounting of how Bombardier’s overall business has performed from July through September.

The US$4.9 billion net loss — which amounts to $2.20 per share — includes a $3.2 billion accounting item related to the CSeries program. The loss also includes a US$1.2 billion charge related to the Learjet 85 business jet program.

Adjusting for the CSeries and Learjet 85 losses and other items, Bombardier would have had a US$2 million profit — essentially break-even, down from $222 million or 12 cents per share a year earlier.

Revenue for the three-month period ended Sept. 30 fell to US$4.1 billion, down $800 million from a year earlier.

Even without the massive writedowns, Bombardier’s results were weaker than expected. Excluding one-time items, adjusted net earnings had been forecast to drop only to US$55.5 million. Revenue had been estimated at just under US$4.6 billion, according to Thomson Reuters.

Bombardier’s shares fell nearly 10 per cent Thursday morning, mostly reversing Wednesday’s gains on the Toronto Stock Exchange.

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