Delta Deal Gives Bombardier Breathing Room on Aid, Leitao Saysby , , and
Quebec finance minister comments in interview in New York
Talks over federal government $3 billion plan said stall
Delta’s $5.6 billion agreement to purchase at least 75 C Series jets will help Montreal-based Bombardier promote the plane and win more orders, Carlos Leitao said Friday in an interview in New York. The deal comes as negotiations between the federal government and the company over a $3 billion financing plan are said to be at an impasse.
“There is less urgency, but it’s still important, especially from the point of view of the signal that it would send to the market,” Leitao said, referring to a federal investment.
Prime Minister Justin Trudeau’s proposal to Bombardier would see his government and the province of Quebec each invest $1 billion directly in the company, along with a share sale that would raise another $1 billion to bolster the firm’s balance sheet, people familiar with the negotiations said last week.
Canada also wants the company to do away with the dual-class share structure that allows the Bombardier and Beaudoin families to maintain control with only a minority stake. Bombardier is balking at these demands, the people said. Federal officials now believe it’s up to Bombardier to make the next move.
The impasse jeopardizes a federal injection for Bombardier, which has already received a $1 billion commitment from Quebec for its C Series jet program. Quebec wants the Trudeau government to match its backing for the program, while the federal government prefers that it and Quebec make a direct investment in the company, the people said.
“It would be important for the federal government to focus its action on the aircraft and not Bombardier itself,” Leitao said.
Asked if a change in control is needed at Bombardier, Leitao said “I don’t think so.” Family control “is one of the reasons the company continues to be based in Montreal,” he said.
Shares of the company have soared this year, bolstered by the Delta order and optimism over government financing. They’re still down by more than 50 percent in the past two years. The B shares closed 3 percent lower on Friday at C$1.97 in Toronto.
“We understand some people in the capital markets have a dim view of the multiple- voting share structure but at the same time, when you as an investor buy shares in a family-controlled company, it’s not a surprise,” Leitao said.
The program to build the fuel-efficient, 108- to 160-seat C Series has been delayed and over budget. It had also failed to gain traction before Delta stepped in. Air Canada signed a letter of intent -- not a firm order -- in February to purchase 45 aircraft with a list value of about $3.8 billion.
Talks with the government are continuing, Sylvie Gauthier, a Bombardier spokeswoman, said in an e-mail. The 73-year-old plane and train maker employs 24,000 people in Canada and contributes C$6.5 billion ($5 billion) to the Quebec economy alone.
Management is said to fear a change to the share structure because it would make the company vulnerable to a foreign takeover, a threat considered immaterial by the federal government, which could block any move under Canada’s investment laws, according to one official.
“It’s not our intention to change anything in this regard,” Bombardier Executive Chairman Pierre Beaudoin said April 29, referring to the dual-class share structure. While some talks continue over an aid package, the broad group of negotiators hasn’t met in four weeks, the officials said.
With Bombardier and the federal government at odds, political pressure is mounting in Quebec, where Trudeau has a sizable contingent of 40 lawmakers. Some of those lawmakers consider Bombardier too big to fail and sense political pressure, the officials said. However, the Delta purchase, Bombardier’s existing cash reserves and any Quebec aid push a cash crunch down the road and leave no imminent risk of collapse, the officials said. Trudeau’s government still believes the company will need a cash injection over the next two years, one official said.
Leitao agrees the Delta purchase means Bombardier is in better shape than before, but it still needs help.
“They have other projects that they would like to get going on but for the time being they can’t because all their resources seem to go to the C Series,’’ Leitao said.