(New throughout, adds background, comments from CEO, updates share price)
By Euan Rocha and Allison Lampert
TORONTO/MONTREAL, Oct 29 (Reuters) - Quebec will invest $1 billion in Bombardier Inc's CSeries jets in return for a near 50 percent stake in the struggling project, the government of the Canadian province said on Thursday, in what some called a risky gambit to protect jobs.
Shares of Bombardier fell 17 percent to close at C$1.33 on the Toronto Stock Exchange as the company burnt through $816 million in the third quarter due to weaker order flows.
"It's a risky situation, but it's a two-way street," Quebec Economy Minister Jacques Daoust told reporters. "We took it from the positive side ... Bombardier could've abandoned the CSeries program. They could have said 'forget it.'"
Quebec's aerospace sector is closely tied to Bombardier, whose 18,000-strong workforce in the province is largely focused on aerospace. The company also helps support many smaller vendors and suppliers. Daoust said the company accounts for about 40,000 direct and indirect jobs in Quebec, with average salaries almost double the provincial average.
"I cannot abandon the aerospace industry," said Daoust.
DBRS Quebec debt analyst Travis Shaw said Quebec's investment was "not unmanageable" but more information was needed to gauge whether it could affect plans to balance the province's 2015/16 budget.
"It's not clear whether the money right now is coming from an existing account that's already been budgeted for or whether this is coming from an entirely new funding," he said.
Bombardier's narrow-body CSeries line of jets, set to compete against Boeing Co's 737 planes and Airbus Group's A319 and A320 jets, have been delayed for years and are billions of dollars over budget.
Struggles with the CSeries project have left Bombardier saddled with over $9 billion in debt. Bombardier has been looking at a range of options to raise cash, including sale of a stake in the CSeries and of a minority stake in its rail arm. Bombardier Chief Executive Alain Bellemare said an announcement on that is expected before the end of the year.
Talks with Airbus around a joint venture on the CSeries fell apart this month.
Quebec's support may raise an outcry from Brazil's Embraer SA, which has lodged complaints in the past about government backing for its rival Bombardier and the CSeries.
Bombardier lost $4.6 billion, or $2.20 a share, in the third quarter, compared with a net income of $74 million, or 3 cents a share, a year ago.
The loss was tied mainly to non-cash charges on the CSeries and on its Learjet 85 program, which is being mothballed. Bombardier, whose market cap has cratered amid its troubles, has already delayed the entry into service on its new Global business jet.
Asked how Bombardier had reached the point where it was forced to write off more than its market value, Bellemare said it had taken on too many new projects, each needing cash at the same time as deposits dried up due to weaker sales.
"We had multiple programs running in parallel and that was very challenging for an organization of our size," he told analysts on a conference call, adding that Bombardier was now more focused.
Excluding one-time items, Bombardier had break-even earnings. On that basis, analysts polled by Thomson Reuters had expected a profit of 3 cents.
Quarterly revenue fell 16 percent to $4.14 billion. (Additional reporting by Sneha Banerjee in Bengaluru; Editing by Bernadette Baum and David Gregorio)