Exclusive: Bailout would cut Bombardier's CSeries jet stake, taking it off books

Fri Feb 26, 2016 6:55pm EST
 
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By Allison Lampert and Andrea Shalal

MONTREAL/WASHINGTON (Reuters) - A proposed Canadian government bailout of Bombardier Inc's (BBDb.TO: Quote) new CSeries jet manufacturing program would reduce the company's stake in the money-losing aircraft, taking it off the plane maker's books and boosting results in the short-term, two sources familiar with the matter said.

The federal government is considering a deal that would give Canada, the Quebec government and Bombardier each a one-third stake in the CSeries, which would be carved out as a separate joint venture with its own board, ‎said the sources who spoke on condition of anonymity because the talks are confidential. Currently, Bombardier controls 50.5 percent of the CSeries and Quebec 49.5 percent.

Federal officials familiar with the situation stress it is too early to say whether a separate CSeries board would be part of a bailout of Bombardier. Prime Minister Justin Trudeau has said his Liberal Party government would announce a decision before the federal budget on March 22.

Such a deal would allow Montreal-based Bombardier to alter the way it accounts for the CSeries business, which is costing at least $5.4 billion to develop and launch and which the company doesn’t expect to generate returns for another four years or more.

The proposed structure would have a positive effect on the parent company's cash flow and earnings per share for the next three to four years, said one of the sources.

The company has forecast 2016 revenue of $16.5 billion to $17.5 billion. Those figures bake in anticipated revenue from about 10 CSeries jet deliveries this year, according to one analyst. The loss of revenue because of deconsolidation would be more than offset by a reduction in CSeries costs and its cash burn rate in the parent company's accounts.

Canada is leaning toward matching Quebec's $1 billion CSeries injection of funds through a deal that could give the federal and provincial governments joint majority control of the 100-150 seat jet program. The first of the jets, the smaller version, is entering service in 2016 after years of delays and cost overruns.

New jet programs typically take years to sell and deliver enough planes to break even and recover sunk development costs.   Continued...

 
A Bombardier CSeries100 aircraft is seen prior to  a news conference in Montreal, February 17, 2016.   REUTERS/Christinne Muschi