Bombardier Is On the Mend, Memo to Lead Canada Minister Saysby
Officials suggested Bains stay neutral on ownership structure
Trove of documents was sent as firm made $1 billion aid pitch
Bombardier Inc.’s fortunes are turning around, officials told the lead Canadian minister reviewing the aircraft maker’s request for $1 billion in government aid.
Innovation Minister Navdeep Bains was also informed in the fall that extra cash is often needed to develop brand-new planes like the Montreal-based company’s C Series model, documents obtained by Bloomberg show.
“Over the last year the firm has taken many significant steps to shore up its position,” a Dec. 4 memo to Bains said. Those measures include naming Alain Bellemare as chief executive officer, suspending dividend payouts, and agreeing on $2.5 billion of cash injections from asset sales to Quebec’s government and the provincial pension fund manager.. “Even with these steps, the firm has continued to use cash at a very fast rate,” said the memo, signed by Deputy Minister John Knubley.
The 154 pages of documents, obtained through a freedom-of-information request, were sent by departmental officials to Bains in November and December. During that time, Bombardier signaled the federal government should match Quebec’s $1 billion contribution, and Bains scheduled meetings with Bellemare and the head of the province’s pension fund to discuss Bombardier.
Since then, federal aid talks are said to have stalled over demands the family loosen its control of the company. Momentum also shifted after Bombardier signed pivotal deals with Delta Air Lines Inc. and Air Canada to supply C Series jets, easing pressure to get the federal funding in place and sparking a rally in the shares, up 49 percent this year.
Officials suggested Bains use a meeting in the first week of December to tell Michael Sabia, head of Caisse de depot et placement du Quebec, that Canada had no view on what has become a contentious issue around the company’s ownership setup.
“My department interacts with firms with different ownership structures and doesn’t have views on how private firms are organized,” the minister was advised, according to a list of suggested talking points. The document doesn’t elaborate on whether that relates to the control of the company’s voting shares by its founding family, or to the Caisse’s stake in Bombardier. Other passages in the documents note the family’s controlling stake and restrictions placed on Bombardier in return for Caisse money.
Prime Minister Justin Trudeau declined to comment Friday on whether the government had taken a tougher stand on the firm’s ownership structure. Maxime Chagnon, a spokesman for the Caisse, also declined to comment as the matter is private.
“Bombardier has put forward a great airplane in the C Series,” Trudeau told reporters in Winnipeg, Manitoba. “We continue to negotiate with Bombardier and work with Bombardier to try and give it the support that it feels it needs.”
Bellemare said in an interview from Dublin this week that growing C Series orders mean he’s ready to curb a discounting policy that helped secure the Delta and Air Canada contracts.
Bains set up a Nov. 18 meeting with Bellemare and Bombardier’s Executive Chairman Pierre Beaudoin in Ottawa, and his officials again told the minister there was “significant pressure on its cash position.” Staff said the minister should tell the executives any aid would require a strong business case and a wide discussion among cabinet ministers. Bains was also told he should press for details on how the company’s review of costs would impact spending plans in Canada.
“I am interested in how this may impact your Canadian operations directly and its suppliers, as well as how this will affect the firm’s overall financial position over the long term,” the list of talking points said.
Bombardier spokeswoman Sylvie Gauthier confirmed the Nov. 18 meeting on Thursday but declined to comment further, saying the conversation was private.
Bombardier’s proposal was being reviewed by a group of government departments beyond the lead innovation, science and economic development branch led by Bains. The ministries of trade, finance and justice, as well as Canada’s export-finance bank, were all involved, according to a briefing document. The due diligence reporting would typically take a private organization 10 to 16 weeks to finish, a Dec. 4 report said.
The delay is causing consternation in some circles.
“We are hoping that the federal decision will result in an investment, but they have to decide -- and the sooner the better,” Quebec Finance Minister Carlos Leitao said Thursday in Montreal. “This indecision could lead some investors to ask themselves: ‘Do they know something we don’t know?’ It’s important to clarify the situation.”
Leitao said the province is proceeding with its investment and he will raise the issue at meetings between federal and provincial finance ministers in Vancouver this month.
Time and Money
The documents blanked out most details of an outside review of the file by Deloitte LLP, the accounting and consulting firm.
The cost overruns and production delays on Bombardier’s C Series are common when creating an aircraft from scratch, a historical table sent to Bains showed. It listed a $2 billion overrun on the $3.4 billion original C Series estimate, as well as delays and cost overruns on Boeing Co.’s 787 Dreamliner and Airbus Group SE’s A380.
The documents also echoed briefings sent to Trudeau -- after his Liberal Party won an October election -- in which the company was described as an “anchor” for the aerospace industry and broader economy.
“Longer-term impacts on Bombardier’s Canadian operations as a result of its weakening financial and competitive position could have negative repercussions for Canada’s aerospace industry given the firm’s prominent role in the industry as an employer, customer and R&D performer,” said a memo sent to Bains before his meeting with company executives.