Bombardier: $3.2bn charge, $1bn from Quebec

Oct. 29, 2015: Bombardier today announced a US$3.2bn charge against the CSeries program and a $1bn investment from the province of Quebec, about half of what

CS100: Certification 97% complete. Photo via Google images.

had been rumored, with its 3Q2015 earnings. The press release is here.

BBD also canceled its Learjet 85 program. Revenues declined $800m to $4.1bn. Exclusive of charges against the CSeries and Learjet programs, BBD reported net income of $71m vs $171m. Total reported net loss was $4.9bn, including the charges against the two programs.

“Today, we are proud to announce that the government of Québec will invest $1 billion in the C Series aircraft program. This partnership comes at a pivotal time, with the C Series on the verge of certification. The market is there, our leadership is in place, we have the best product and with the support of the government, we are ready to make this aircraft a commercial success,” said Alain Bellemare, president and CEO.

Beaudoins continue to maintain control

BBD released the following description of the Quebec investment:

Bombardier has entered into a memorandum of understanding which contemplates a $1.0 billion investment by the Ministère de l’Économie, de l’Innovation et des Exportations du Québec (through Investissement Québec) (the Government) for a 49.5% equity stake in a newly-created limited partnership (the Investment) to which would be transferred the assets, liabilities and obligations of the C Series aircraft program. This newly created limited partnership will be owned 50.5% by Bombardier and, as a subsidiary of Bombardier, will  carry on the operations related to the Corporation’s C Series aircraft program. After the Investment, the newly created limited partnership will continue to be consolidated in Bombardier’s financial results. The Investment has been approved by the Board of Directors of Bombardier and the Cabinet of the Government of Québec, and remains conditional upon the completion of definitive agreements, the receipt of consents from third parties, the completion of an internal pre-closing reorganization, the receipt of required regulatory approvals and other customary conditions precedent. The proceeds of the Investment will be used entirely for cash flow purposes of the C Seriesprogram.

The Investment also includes the issuance to the Government of warrants exercisable to acquire up to 200,000,000 Class B Shares (subordinate voting) in the capital of Bombardier (Class B Shares) (representing approximately 8.18% of the aggregate issued and outstanding Class A Shares (multiple voting) in the capital of Bombardier (Class A Shares) and Class B Shares assuming the exercise of the warrants, and approximately 8.90% of the aggregate issued and outstanding Class A Shares and Class B Shares on a non-diluted basis), at an exercise price per share equal to the US$ equivalent of $2.21 Cdn on the date of execution of definitive agreements, which represents a premium to the 5-day VWAP of the Class B Shares on the TSX as of   October 20, 2015. The TSX has determined to accept notice of the private placement of warrants and has conditionally approved the listing of the Class B Shares issuable pursuant to the terms of the warrants on the TSX. Listing will be subject to Bombardier fulfilling all of the listing requirements of the TSX. The warrants will have a five-year term from the date of issue and will not be listed on the TSX. The warrants (and any Class B Shares issuable pursuant to the exercise of the warrants prior to the expiration of the applicable hold period), will be subject to a statutory four-month hold period. The warrants will contain market standard adjustment provisions, including in the event of corporate changes, stock splits, non-cash dividends, distributions of rights, options or warrants to all or substantially all shareholders or consolidations.

Security holder approval is required under TSX rules due to the fact that the warrants will be issued later than 45 days from the date upon which the exercise price was established, as set out in Section 607(f)(i) of the TSX Company Manual. Such approval has been obtained, as agreed with the TSX, by way of written consent of shareholders holding more than 50% of the voting rights attached to all of Bombardier’s issued and outstanding shares.

The Investment was negotiated between Bombardier and the Government at arm’s length and will not materially affect control of Bombardier.

The definitive agreements are expected to be entered into on or before January 1, 2016, or such other date as the Corporation and the Government shall agree, and disbursement of the Investment and issuance of the warrants will occur over two equal installments, expected to take place on April 1, 2016 and June 30, 2016, respectively, subject to the conditions to closing.

The Investment contemplates a continuity undertaking providing that Bombardier shall maintain in the Province of Québec, for a period of 20 years, the newly-created limited partnership’s operational, financial and strategic headquarters, manufacturing and engineering activities, shared services, policies, practices and investment plans for research and development, in each case in respect of the design, manufacture and marketing of CS100 and CS300 aircraft and after-sales services for these aircraft and that Bombardier will operate the facilities located in Mirabel for these purposes.

The Government’s interest in the partnership will be redeemable in certain circumstances.

BBD continues to pursue a minority equity investment in its Transportation (train) business.

 

5 Comments on “Bombardier: $3.2bn charge, $1bn from Quebec

  1. A book chapter of the third world aircraft manufacturer has just ended. We must all acknowledge the importance to have such an aircraft manufacturer knowing that it will take at least a generation of Chinese to put up such an organization. This third manufacturer can benefit all airlines. And it is important that it is present and that it remains viable. Even at this price. That of pride. And that is not yet profitable in the short term.

  2. In the Netherlands the government refused to step in & save Fokker. The industry had to keep up its own! Ignoring that aerospace doesn’t work like that, nowhere.

    The Brazilians successfully took over (with massive government support) the 100 seat market. The Dutch aerospace infrastructure has been collapsing since then. With a few high tech dots surviving.

    http://wp.nlr.nl/wp-content/uploads/2013/07/NICETRIP-Team.jpg

    Industry people from China, Korea, India have been wondering if the Dutch went crazy simply pulling the plug on their 80 yrs aerospace they are investing xx billions in, to painfully establish..

    The Canadian government seems more realistic.

    • The Dutch government made the correct decision at the time. It would have cost billions on top of what they put in to save the declining jet and turbo prop programs to develop new planes to compete with ATR and Embraer.
      The EU rules about ‘state aid’ makes it a lot harder to do what Quebec province has done( whos own credit rating is as poor as Bombardier).
      I wish them well, for its a great achievement from a design and production viewpoint, but airplanes are a brutal business.

      • Bombardier’s credit ratings:
        Moody’s B2
        Fitch B
        Standard and Poor’s B

        Québec’s credit ratings:
        Moody’s Aa2
        Fitch AA-
        Standard and Poor’s A+
        Dominion A high

        Ontario’s credit ratings:
        Moody’s Aa2
        Fitch AA-
        Standard and Poor’s A+
        Dominion AA low

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