Photographer: Kevin Van Paasen/Bloomberg

Bombardier Seals Quebec Deal as C Series Focus Shifts to Trudeau

Updated on
  • Province to invest $1 billion in overdue, overbudget jetliner
  • Narrow-body plane marks effort to challenge Boeing and Airbus

Bombardier Inc. sealed a deal for Quebec’s provincial government to invest $1 billion in the troubled C Series jetliner, putting the spotlight on whether the federal government also will help the Canadian planemaker take on industry heavyweights Boeing Co. and Airbus Group SE.

Under a deal that took eight months to nail down, the C Series program will be carved out into a partnership that will be 50.5 percent owned by Bombardier and 49.5 percent by Quebec, the Montreal-based company said in a statement Thursday. The province’s investment will consist of two $500 million payments, on June 30 and Sept. 1.

Quebec’s cash injection adds to other good news for Bombardier. The stock has climbed six times as fast as Canada’s benchmark this year, following a $1.5 billion investment by the province’s public-pension manager and a substantial order from Delta Air Lines Inc. for a jet that is more than two years late and $2 billion over budget.

The Bombardier CS100

Photographer: Kevin Van Paassen/Bloomberg

The provincial investment “provides key support for the C Series program that should inspire greater market confidence in its long-term viability,” Cameron Doerksen, a National Bank Financial analyst in Montreal, said Thursday in a note to clients. “The program is in much better commercial shape than in late 2015, which begs the question as to whether Bombardier even needs the federal government support.” Doerksen cited the Delta order as well as a pending commitment from Air Canada.

‘Highly Desirable’

“We continue to engage with Bombardier,” Canadian Finance Minister Bill Morneau told reporters in Toronto, saying the company’s long-term success is important.

Bombardier’s five-year turnaround plan doesn’t depend on getting a federal injection of cash, Patrick Ghoche, vice president for investor relations, said in an interview. Quebec Transport Minister Jacques Daoust echoed the comment, saying his government will continue to press the case with federal authorities.

“It’s highly desirable that they come in, but not essential,” Daoust said on ICI Radio-Canada television. “If the federal government decided to invest, it would invest in a company that’s very different from October,” when Quebec and Bombardier reached a preliminary agreement.

Family Control

Prime Minister Justin Trudeau said this month that the federal government still was considering Bombardier’s request for $1 billion in aid. The company has balked at demands that its founding family loosen control and issue $1 billion in new stock. Rather than simply invest in the C Series -- an attempt to enter a narrow-body airliner market dominated by Boeing and Airbus -- Trudeau’s government prefers to make a direct investment in the company, people familiar with the talks said in May.

If Bombardier fails to reach a federal pact, Quebec could make further investments in the program, Chris Murray, an AltaCorp Capital analyst, said in a note to clients.

Bombardier’s Class B shares rose 1.3 percent to C$1.99 at 12:59 p.m. in Toronto. The stock climbed 46 percent this year through Wednesday, compared with a 7.6 percent gain for the S&P/TSX Composite Index.

“The completion of this agreement is an important step in securing the funding required to ramp up C Series production over the next several years,” Fadi Chamoun, an analyst at BMO Capital Markets, said in a note to investors. The deal should also “support the company’s marketing efforts,” he said.

Delta Order

The C Series enjoyed a sales revival this year, with Air Canada signing a letter of intent for at least 45 CS300s in February and Delta agreeing in April to buy at least 75 smaller CS100s, valued at $5.6 billion apiece at list price. The U.S. carrier’s order is by the far the largest for the C Series.

The first plane is scheduled to enter service next month with Deutsche Lufthansa AG’s Swiss unit, and more orders could follow the maiden flight, said Nick Heymann, an analyst at William Blair & Co.

Bombardier Chief Executive Officer Alain Bellemare “is not only making the tough but critical changes necessary to ensure the company’s operational success, but is also finally beginning to win global credibility for its C Series program,” Heymann said. Bellemare became CEO in February 2015 with a mandate to restore profitability after two straight years of losses.

Under the accord announced Thursday, the C Series program’s headquarters, manufacturing, engineering and research and development activities will remain in Quebec for at least 20 years. The program’s board will consist of three directors proposed by Bombardier and two by the Quebec government.