BUSINESS

Bombardier Gets US$1 Billion From Quebec, Posts Huge Third Quarter Loss

10/29/2015 06:35 EDT
Bloomberg via Getty Images
Attendees exit the new Bombardier Inc. CS100 airplane during an event at the company's facility in Toronto, Ontario, Canada, on Thursday, Sept. 10, 2015. Bombardier Inc. is refocusing the sales campaign for its tardy CSeries jet on established, 'marquee' airlines, a shift away from reliance on lessors and small carriers. Photographer: Kevin Van Paassen/Bloomberg via Getty Images

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.

"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," CEO Alain Bellemare said Thursday as the company posted weak third-quarter results.

The Montreal-based company lost US$4.9-billion, 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 match Quebec's investment by also spending US$1 billion to complete the CSeries, which is about two years behind schedule.

Up to 20 of the aircraft will be built next year as Bombardier ramps up to full production in three to four years and aims to break even by 2021, 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 company has committed to maintain CSeries operations in Quebec for 20 years. 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 directly employs 18,000 and supports 40,000 in Quebec's aerospace industry.

"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 — which competes with smaller planes from Airbus and Boeing, is about 97 per cent of the way through final testing — one of the last steps before the aircraft can be put into service by mid-2016.

Bellemare, who was brought in earlier this year to overhaul the struggling company, conceded that Bombardier has been overwhelmed by too many development programs.

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 said during a conference call.

Analyst Chris Murray of AltaCorp Capital said Quebec's contribution adds certainty that Bombardier can finish the program and support it for decades to come.

"I don't think it's a Hail Mary so much as it's probably the best solution that's out there," he said, referring to the company's discussions with Airbus, the Chinese and other potential partners.

Karl Moore, professor at McGill's Desautels Faculty of Management, said the deal doesn't solve all of Bombardier's cash flow problems, but gives the company "breathing room."

The cash infusion also adds security for Bombardier workers, said Dave Chartrand of the International Association of Machinists and Aerospace Workers.

"Knowing that all the employees inside have been worried for the last couple of years because of everything that's going on ... this comes as a good surprise," he said.

Bombardier also announced that 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. 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

Bombardier's US$4.9 billion net loss — which amounted to $2.20 per share — includes a $3.2 billion writedown related to the CSeries program and a US$1.2 billion charge for the Learjet 85.

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 US$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.

Bombardier's shares fell nearly 12 per cent Thursday afternoon, wiping out Wednesday's gains on the Toronto Stock Exchange.