WASHINGTON/MONTREAL (Reuters) - Bombardier (BBDb.TO) on Thursday will announce a deal with the Quebec government to invest in the struggling CSeries jet program, and write down the value of that project and the mothballed Learjet 85 program by more than $4 billion, sources familiar with the matter said.
The Montreal-based company, which reports earnings on Thursday, has been looking at a wide range of options to help it fund the long-overdue and over-budget CSeries narrowbody jet, which is slated to enter service next year. Talks with Airbus Group SE (AIR.PA) fell apart earlier this month.
The plan is for the Quebec government to fund half the final development costs on the new jet through a joint venture with Bombardier, according to the sources who asked not to be identified as they were not authorized to discuss the matter.
The sources would not say how much money Quebec planned to invest in the joint venture. A Bombardier spokeswoman and Quebec’s economy minister Jacques Daoust declined to comment.
In a note to clients on Tuesday, Sterne Agee analyst Peter Arment wrote that CSeries program development costs have already topped $5 billion and he expects another $2 billion in cash will be required to finish certification and absorb the ramp-up in production in the first three years.
That would mean Quebec would potentially front $1 billion or more in order to fulfill its side of the deal.
Shares of Bombardier, the world’s only manufacturer of both trains and planes, rose 11 percent to close at C$1.61 on Wednesday. Bombardier and its Brazilian rival Embraer S.A. (EMBR3.SA) vie for title of the world’s third-largest civil aircraft maker behind Boeing Co (BA.N) and Airbus.
Bombardier suspended the development of its Learjet 85 business aircraft in January, citing weak demand. It is likely to confirm on Thursday that it plans to mothball the program permanently and book further charges in this regard, said the sources.
The total writedown including both the CSeries and Learjet programs is likely to be over $4 billion, said the sources.
Bombardier Executive Chairman Pierre Beaudoin said last year that the CSeries and the new Global jets were higher priorities than the Learjet 85. Even so, when asked at the time whether Bombardier might abandon the program, he said it was moving ahead. In July, the company pushed back delivery of its new Global business jet. The company said at the time its Global 7000 business jet, previously scheduled to go into service in 2016, is now expected to do so in the second half of 2018.Quebec’s government has repeatedly said it will support Bombardier and its 18,000-strong workforce in the province.
Bombardier has aggressively cut costs in the last two years, as it has struggled to get its new CSeries jet into service.
In May, it said it would cut 1,750 jobs in its business jet unit, which followed a cut in January of 1,000 jobs after it halted the Learjet 85 development. Analysts expect Bombardier to announce lackluster results on Thursday, given softness in airplane orders. “We expect the third-quarter to be a weak quarter with significant year-over-year declines in the key metrics due to weaker aircraft deliveries & orders,” said Macquarie analyst Konark Gupta in a note to clients on Wednesday.
Separately, the Toronto Transit Commission (TTC) plans to sue Bombardier to recoup at least C$50 million ($37.9 million) in costs associated with the delayed delivery of new streetcars, a spokesman said on Wednesday.
Additional reporting Tim Hepher in Paris, Mike Stone in New York, Euan Rocha and John Tilak in Toronto and Kevin Dougherty in Quebec City; Editing by Amran Abocar and Nick Zieminski