Bombardier-Quebec investment another step in securing future

Nov. 19, 2015: The $1.5bn investment by Caisse de dépôt et placement du Québec to take a 30% stake in Bombardier Transportation, the rail business, is another step in the financial restructuring of the distressed company.

This brings to $2.5bn Bombardier has funded in recent months. The Province of Quebec previously agreed to invest $1bn in the CSeries program.

CDPQ is a long-term instutional investor that manages funds primarily for public and private pension funds.

“The transaction concludes the review of financing options previously announced for Bombardier Transportation,” the company said in a press release. “As previously announced, Bombardier’s Board of Directors examined a wide range of strategic options for its rail business. After a thorough review process, including an initial public offering and a competitive international auction process for the private placement of a minority stake, the Board of Directors of Bombardier determined the transaction announced today, contemplating the sale of 30% of Bombardier Transportation to CDPQ, is the most attractive option. The transaction announced today, when completed, will crystallize the value of Bombardier Transportation and strengthen Bombardier’s financial position, with no increase in debt. The funds to be received by BT Holdco from the transaction will be distributed to Bombardier and Bombardier intends to use the proceeds for general corporate purposes.”

Alain Bellemare, CEO of BBD, said that BBD is “gaining an ideal partner” for the growth “while allowing us to maintain a majority stake” in the company. After the deal is complete, BBD will have $6.5bn in liquidity. BBD Transportation has a $30bn backlog.

“We have now de-risked Bombardier,” Bellemare said. Further detail about the Transformation Plan and other business plans will revealed at the BBD investors day in New York Nov. 24.

CDPQ has a sliding scale of its ownership and coupon depending on Transportation’s performance. There are also mechanisms to maintain and, if necessary, restore specific liquidity levels.

The full press release, with details of these parameters, is here.

the transaction is to close in the first quarter next year.

32 Comments on “Bombardier-Quebec investment another step in securing future

  1. In a previous post dated November 2, I have overvalued Bombardier Transport when I said that Caisse would take a 20% stake in BT which I then estimated to be equivalent to $1.5 billion as I estimated BT to be worth 7 to 8 billion dollars. Anyway, this is good news for Bombardier and the C Series. Québec had previously announced $1 billion plus 200 million shares at $2.21 for an additional $442 million. In other words nearly $1.5 billion from Québec. We can now add another $1.5 billion from Caisse. Ottawa is also expected to invest a similar amont, somewhere between 1 and 2 billion dollars (let’s say $1.5 billion). If we add all this together it represents 4 or 5 billion dollars of fresh money at little immediate cost for Bombardier. I am sure all that cash will be put to good use. Like for exemple developing the CS500 and revamping the CRJ700/900/1000 and Q400.

    Like we have seen in Paris in the last few days, Bombardier has been under attack recently by a group of Bay Street radicals who cannot accept that some people who belong to another culture just want to have fun and enjoy life.

    • Normand,

      You say “Bay Street radicals who cannot accept that some people who belong to another culture just want to have fun and enjoy life.”

      As someone who lives in Toronto (but doesn’t work on Bay Street), I have zero problem with another culture wanting to have fun and enjoy life and I am honestly delighted for Bombardier that they have received the funding they need and I think these will provide to be good investments for the province of Quebec and the Caisse – I think they got good prices for both transactions. It’s the ordinary BBD shareholders who have been screwed – the founding family keeps control by selling a significant portion of the future earnings generators for the business.

      What gets the Bay Streeters (and me) up in arms is the implication (perhaps I’m reading too much into your post) that all Canadian taxpayers should be duty bound to fund things so that the people in Quebec can have fun and enjoy life.

      • You are not reading too much into my post Bruce. You are actually not reading enough. I have nothing against extremists who have a darwinian view of business. I do not share their ideology but I respect it. What gets me up in arms, to use your own expression, is the fact that these same people have few problems when time comes for the federal government to save GM and Chrysler, which are based in Ontario, while applauding the Canadian government for subsidizing the oil industry, which is based in Alberta. I can only suppose that the fact Bombardier is based in Québec is far less acceptable to them; precisely because they belong to another culture, and therefore should not be entitled to the same treatment. I call this political hypocrisy. In addition to this a whole mythology of government subsidies has developed over the years around Bombardier because in the past they have literally saved Canadair and de Havilland, not counting the train industry in Ontario, with what appears today as a ridiculous amount of tax payers money (compared to the nuclear industry). The magnificent Challenger was launched in 1976 by the Canadian government who owned Canadair at the time and spent billons on its development. But it’s important to understand that Bombardier only acquired Canadair ten years later (1986), and to the relief of the Canadian government. Today Bombardier continues to produce this aircraft of which nearly 1000 frames have been built so far, plus an additional 2000 frames almost for the stretched versions. Like for cars and oil it’s very good for the export balance. Same story with de Havilland six years later (1992). And Queen Elizabeth II of the United Kingdom was, and still is, delighted with her investment in Shorts via Bombardier in 1989. It actually helped to bring back peace in Belfast. But in Canada the same kind of deal is threatening to bring war back.

        • The Bay Street guys generally weren’t very happy about bailing out Chrysler and GM either – although they typically do applaud tax breaks (accelerated depreciation) that promoted the growth of the oil industry.

        • I don’t think the culture in Quebec is as different from the rest of Canada as you would like to believe!

      • I should also say that I have no problem with BBD getting Government assistance. While I don’t like the idea I think that in this world, if you want to compete against heavily subsidized EAD, Boeing and effectively government run programs from China, Brazil and Japan then you have to be willing to play by those rules. As a born and bred BC, we more than anyone else can ask why we have never gotten our fair share of government handouts!? If there is any Province in Canada that could flourish as the 51st State this is the place.

  2. Name me one large aircraft manufacturer not build on and supported by large amounts of public money.

        • She is no longer around to be enjoyed. Unfortunately she died of a broken heart after being abandoned by her suitor. It’s too bad, for she was slim and rather good looking. But I still prefer the C Series because she is taller on legs and sports much bigger engines! 🙂

          • The reminder about Fokker is prophetic, Shorts at that time was owned by Bombardier

            “”The ironic thing is that sales of Fokker aircraft are very healthy,” says company spokesman, Alec McRitchie. Shorts has been making wings for the Dutch company since the mid 1960s. It was involved in the design of the wing sets for the Fokker 70 and Fokker 100 which it manufactures on a risk sharing basis. “If they don’t sell any planes we don’t make any money,” Mr McRitchie says.”

            And this:
            “”Fokker has a stable order book, not just promises but commitments to around 40 planes a year. It would appear that we’re being carved up on the altar of profitability. ”
            Irish Times may 1996

            40 planes a year!, what Bomabardier would do for an stable order book of 40 planes a year.

            Significantly the one organisation which ISNT putting money in is Beaudier Group, the family investment vehicle, which much prefers a cement plant at this time.

  3. Could it be argued that BBD now doesn’t even need new cash from the Canadian federal government?

    Yet, Bombardier and the Canadian government have publicly confirmed that discussions are ongoing. What form could new federal financing take? A new royalty-repayable loan? Such a loan would have to be use to develop new products. The CS500 is obvious but how to improve the CRJ and Q400?

    The CRJ would need a new wider fuselage and GTF engines… Essentially a new aircraft altogether.

    The Q400 would need a smaller brother with less powerful, more economical, engines to compete at the same price level as the ATR 72… Has it been a mistake to discontinue the Q300?

    • “Could it be argued that BBD now doesn’t even need new cash from the Canadian federal government?”

      There are mainly two reasons why Bombardier needs cash at the moment. One is to be able to continue to pay their employees, and the other is to be able to develop new models of aircraft, or improve the existing ones.

      “The CS500 is obvious but how to improve the CRJ and Q400?”

      That is an excellent question. It was suggested not long ago by André Allard Aviation that Bombardier might be in the process of developing a new CFRP wing that would be common to all CRJ models: 700/900/1000. With new engines it could again become a formidable contender in that category. As for the Q400 it is less obvious to me what should be done. One thing is for sure though: the market prefers fuel economy over speed. I think there is a lesson here for Bombardier in that a jet is a jet and a turboprop is not a jet.

      • Instead of doing a new CSeries as the CS500, they are now probably thinking of making a stretch CS300, it will same a big pile of spending money and time to rethink the whole thing from scratch on a drawing / engineering bord.

        • Most agree that a new wing will not be required for the CS500. They already engineered in the second evacuation door in the midsection so all that would be required would be to put in a plug forward the midsection and a smaller plug aft of the midsection. I would not be surprised if the detailed plans have not been already drawn up and ready to go. They also have already warned Belfast to be ready for some fuselage work. Here is hoping they have a big order to launch it with.

  4. I don’t know much about the business end and no comments there.

    However I do know something about engines and what always struck me is that while the now so called Q400 is fast, you can also slow down.

    When I was younger a 737 made the Fairbanks to Anchorage trip in 45 minutes flat. Fuel cost went up, it turned into an hour.

    I recently read that the sales people for BBD are now telling customers its not an only fast, you can indeed slow it down and save fuel.

    Obviously with the larger engines not as much as an ATR and you still pay for the larger engines. It does close the gap though a lot.

    So call it an inability to adapt and tell customers what the real story is.

    You then can get good fuel economy when you need it, but you also have the hot and high power as well as ability to run fast if behind or the route and trip price allows it.

    Not a whole solution for the Q400 but better and not stuck in the mud as in the past.

    So its far more flexible than an ATR as it can do things the ATR can’t do and comes close to the only ATR real advantage which is fuel economy.

    • We might never see a much improved version of the Q400 for the same reason we might never see a brand new ATR. There would be little chance for Bombardier and Airbus to recoup their respective investments as the margins are too low in that category of aircraft. That might explain why Airbus is so reluctant to approve the project. For Bombardier it’s more a lack of cash than a lack of will. And inspired by what you say in your post I would add that if Bombardier and Airbus cut down on their investments in new turboprop versions they will burn less cash…

      • Yes, BA has “the will”. But, not the cash. This is my fundamental problem with Bombardier Aerospace, if they can find some one with the cash, they have “the will” to roll the dice and see what happens. But, if any of the risk is put on BA, they have lost the will. More and more, it is starting to look like a one sided deal. Give BA the Taxpayers cash, if it works, the owners keep the bonuses, if it fails, the taxpayers will have to bail out the company and save the jobs. Nice deal, I wish that I could find investors that were that stupid.

    • The Q400 engine( PW150A engines rated at 5,071 shp) is twice as powerful as the ATR72 (PW124B engines rated at 2,400 shp)

      Its a significant increase which means a much higher cost to buy and run. Slowing down doesnt mean much as you still wouldn’t save much fuel compared to an ATR running at optimum power for its cruise speed

  5. Bombardier should get the Q400 built in Queretaro Mexico or Casablanca Morocco to lower the price.

    Keep DeHavilland assy. for business jet like the Global .

    Maybe moved out the CRJ’s from montreal as well and get them built in Mexico to lower the price.

    • Yes… as Mexico was a stunning success on the Lear85.
      … and on the Toronto streetcars to name two.

  6. They say they will announce some further initiatives at the investor conference in New York on the 24th. Now that they have liquidity they have options available. In the Globe & Mail they mentioned that there are some potential big orders coming which might require BBD to ramp up quickly and perhaps start up a second CSeries production line. They are talking to United today and perhaps even pitching the CS500. In any event, it feels like they are about to turn a corner and have some good news for a change.

    • “…there are some potential big orders coming which might require BBD to ramp up quickly and perhaps start up a second CSeries production line.”

      We have to be careful when we say a second production line. It would be more appropriate to say a full production line, as the existing one is only a pre-assembly one. What is missing is a movable line in order to bring production up to 10 a month. But that would require a new assembly building in front and in line with the existing pre-assembly hall. My understanding is that the preassembled aircraft would be rolled into position on the movable line where it would be fitted with engines/pylons and other equipment in a queue similar to a car assembly line. There would be no lateral positions in that new hall. And in the future they have the capacity to double that installation by building side by side a second pre-assembly hall and an additional movable line in parallel. That would bring total production to 20 a month (2 X 10), including other models like the CS500. Anything beyond that would require them to open a new facility in another part of Mirabel.

      • You are dreaming if you are thinking even of 10 a month. How much extra money would that take , and from whom- the Beaudier Group ? – Dont make me laugh. Its a great plane but its a brutal cut throat business with 2 very determined competitors above and one below.

        • You make me say things that I have never said. You should have addressed your reply to Trooper or the Globe & Mail. Please make sure to read any post carefully before you reply to it. And in the future if you want to make any comment about one of my posts I would like you to consider addressing your reply to Anchor Hosting.

        • Dear Dukeoful,
          You seem to know exactly what is needed to advance the production rate. You seem to know what, how much, and especially how to reach 10 aircraft per month. You are even looking for a extra money you know. Please enlighten our lanterns!

          • What would I know , other than the majority owners are the only people in Quebec NOT putting money into the company?

            Son mec fou

  7. I think the tragic of the Q400 vs the ATR72 is, it offers performance the airlines don’t ask for, for a price they are not willing to pay.

    https://financialpostbusiness.files.wordpress.com/2012/03/fp0207_westjetpurchase.gif

    The Q400 can replace a jet over longer stretches. Over longer stretches airline want 100+ seats and cargo.

    Apart from that the ATR offer a -42 too and ATR did a successful cockpit, system, engine and cabin upgrade that significantly improved the cockpit / cabin experience and performance.

    http://www.atraircraft.com/userfiles/files/Brochure_innovation_2009light.pdf

  8. And I am not talking an all new Q400 type.

    Any re-vamps to make it as efficient as possible with as low an investment, sell it on the basis they are talking now (slow it down) and it can get awfully close to an ATR on efficiency and it can do things the ATR could not dream of doing (high hot, full load, engine out, high speed on selective routes)

    Ak Airlines are no fools and they want that speed on their routes and its served them well. I don’t know if they slow down, maybe on the shorter routes.

    Price has to be as reasonable as possible so get off the high price point if its an issue.

    • I think IFC firmed up their order now that they have access to financing. This was in Russian aviation:

      We took part at the airshow in Zhuhai with a chalet. Our decision for it can be explained by the fact that IFC is one of the largest buyers for the Bombardier C Series. With these new Canadian aircraft on our order book, we have been meeting clients from Southeast Asia. IFC has also been in touch with financiers who want to take part in structuring financial packages for our airline customers. Today, I am not in a position to name certain banks or financial institutions we are talking to. I can only say that IFC has held many meetings recently, including some on the Chinese territory. For all I know, many of our colleagues, too, have been doing the same thing. What will come out of it? Let’s see. But we look forward to a closer cooperation with Chinese partners.

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