Tuesday, February 07, 2017

Canada Offers Financial Aid to Bombardier, Less Than Requested: Bombardier’s financial situation had improved since the initial request of $1 billion, government minister says

The Wall Street Journal
Updated February 7, 2017 8:30 p.m. ET

The Canadian government offered a financial-aid package to Bombardier Inc. on Tuesday as the high-profile manufacturer works to ramp up sales of its struggling CSeries aircraft.

After more than a year of negotiations, the Liberal government said it would lend 372.5 million Canadian dollars ($283 million) to Bombardier to aid in the Montreal company’s development of the CSeries and Global 7000 aircraft. The amount is far short of the original request for $1 billion, which would match the amount of financing the province of Quebec put up in 2015 in exchange for just shy of a 50% stake in the CSeries project.

Canada’s Innovation Minister Navdeep Bains—who is responsible for industrial policy—said at a press conference that the money would ensure thousands of well-paying, high-tech jobs remain in Canada. The company and its chief executive, Alain Bellemare, are headed in the right direction, Mr. Bains said.

“This reflects a vote of confidence in this sector…and the leadership of this company,” he said.

Asked why Ottawa didn’t provide $1 billion, Mr. Bains said Bombardier’s financial situation had improved since the initial request. He cited Bombardier’s ability to strike a deal with Delta Air Lines Inc. for as many as 125 of its new single-aisle jets, including a firm order for 75 planes and options for another 50; and a pact with Air Canada for a firm order for 45 CSeries aircraft and options for another 30. Bombardier delivered its first CSeries jet to Swiss International Air Lines last June.

Talks between government officials and Bombardier executives began before the election of Prime Minister Justin Trudeau’s Liberal government in October 2015. After his election, Mr. Trudeau said he would only provide a financing deal if there were a strong business case for Ottawa to put up taxpayer-backed financing for the private-sector company.

Troubles and yearslong delays related to the CSeries aircraft—designed to compete in the single-aisle jet field with giants Airbus SE and Boeing Co.—coupled with softness in aircraft demand has placed a severe strain on Bombardier’s cash flow. This has forced the company, one of the highest-profile manufacturers in Canada, to cut thousands of jobs, restructure operations and record billions in write-downs to reflect the declining value of the CSeries.

In early 2015, the company named Mr. Bellemare as CEO, taking over from Pierre Beaudoin, who is a grandson of Bombardier founder Joseph-Armand Bombardier. The children of Joseph-Armand Bombardier maintained voting control of the company through their ownership of the bulk of Class A shares.

Months after taking over, Mr. Bellemare and the Quebec government struck the $1 billion financing deal. The provincial government said the Canadian government should provide a matching $1 billion, given the support Ottawa provided to bailout the auto sector during the financial crisis.

In another move designed to shore up its balance sheet, Bombardier sold 30% of its profitable train-manufacturing business to Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund, for $1.5 billion.

Mr. Bellemare said the loan, available over a four-year period, gives Bombardier much-needed financial flexibility in the event of another market shock and enables it to pursue new projects that could boost earnings.

The company would repay the money it borrows, Mr. Bellemare said. “It’s the right solution for where we are” as a company, he said.

Canada’s loan, and the Quebec financing beforehand, underscores the widely held view that Bombardier, which anchors a Canadian aerospace sector that employs about 40,000 people, is too important to the Quebec economy for the government to allow it to fail.

The Canadian government has invested heavily and consistently in Bombardier, issuing more than C$1.3 billion in loans to the company over the last half-century. The company has paid back roughly half of that amount, according to government data.

Bombardier told investors last December it expected to generate single-digit revenue growth for 2016, while reaffirming a goal of breaking even on cash flow by next year. Bombardier’s third-quarter revenue, its most recent quarterly report, fell by nearly 10% by lower aircraft sales, but the company signaled it would beat its profitability targets for the year in all its business segments.

Original article can be found here:  https://www.wsj.com

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