April 15, 2016 / 1:42 PM / a year ago

Canada government, Bombardier still far apart in aid talks: sources

4 Min Read

A Bombardier flag flutters amidst storm clouds at the Singapore Airshow at Changi Exhibition Center February 18, 2016.Edgar Su

MONTREAL/OTTAWA (Reuters) - Canada's Liberal government and Bombardier Inc (BBDb.TO) are still not close to reaching a deal on aid for the struggling manufacturer, making an agreement before its annual meeting this month unlikely, according to well-placed sources.

The firm, based in the province of Quebec, wants Ottawa to invest $1 billion in its new CSeries passenger jet, which is years behind schedule, billions of dollars over budget and has won relatively few orders so far compared to its rivals.

A source with knowledge of the talks said one sticking point is that Ottawa wants Bombardier to commit to certain performance guarantees, and even suggested the government could walk away from aid talks.

"We want to help, but it's got to make sense," said the person, who asked to remain anonymous because of the sensitivity of the matter.

Bombardier and Ottawa are at odds over the level of the Canadian government's involvement in the day-to-day running of the company, a second person familiar with the talks said.

Government proposals for operational oversight in return for funding represent "a level of micro-management that is beyond what any normal investor or board member would expect," the person added.

Speaking to reporters in Toronto, Innovation Minister Navdeep Bains said the government is having "constructive" discussions with the company.

He spoke after Bloomberg, citing unnamed sources, earlier reported that Bombardier rejected an initial investment proposal from Ottawa.

A third source familiar with the talks said it was incorrect to say that Bombardier had rejected the counter-offer, since the two sides were still involved in "complex and multi-dimensional" negotiations.

A Bombardier spokeswoman declined to comment. Bombardier holds its annual meeting on April 29.

Bombardier struck a $1 billion deal with the province of Quebec last October to support the CSeries and is seeking a similar sum from Ottawa. But federal officials have said they do not want to imitate the structure of that deal, which some felt did not impose enough conditions on the company.

Ottawa is more interested in an agreement like the one Quebec's public pension fund manager struck last November when it agreed to buy a 30 percent stake in Bombardier's rail business, the officials said.

That deal imposed benchmarks on Bombardier and also laid out what returns the Caisse de depot et placement du Quebec can get for its money.

Quebec, however, wants the federal deal to be comparable to its own to avoid looking like it had negotiated the weaker of the two agreements with Bombardier, said a political source familiar with the matter.

A spokeswoman for Quebec's Transportation Minister said the province would not negotiate in public, but "everyone wants to have the most favorable deal.”

Legislators in the ruling Liberal Party are also concerned about possible job losses at the company.

Bombardier shares hit a six-month high on Friday following reports it was poised to secure the largest order so far for the CSeries from U.S. carrier Delta Air Lines Inc (DAL.N). The order is expected to be for 75 CSeries jets with options for 50 more. Industry sources said Delta's board was due to vote on the proposal later this month.

The U.S. airline is also likely to order 30 A321s from Airbus (AIR.PA), a source close to the negotiations said, echoing a figure first reported by Bloomberg.

Bombardier shares initially rose as much as 17 percent to C$1.79 before closing up 5.9 percent at C$1.62.

Additional reporting by Alastair Sharp in Toronto, Tim Hepher in Paris; editing by Bernard Orr, G Crosse

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