(Adds details on Airbus, analyst comment, background on business jets)
By Andrea Shalal and Allison Lampert
WASHINGTON/MONTREAL, Oct 28 (Reuters) - Canada’s Bombardier is set to book a writedown on its CSeries program and announce that the government of Quebec will be investing in the narrowbody jet program, according to several sources familiar with the matter.
The embattled Montreal-based company will also permanently mothball its Learjet 85 program, the sources said.
Bombardier, which has been looking at a wide range of options to help it fund its long-overdue and over-budget CSeries jet program, will form a joint venture with the Quebec government on the CSeries, said the sources, who asked not to be named as they were not authorized to discuss the matter.
To form a joint-venture, Bombardier will write down billions of dollars it has already sunk into the CSeries, said the sources. If a deal is reached, the government would be on the hook to fund half the final development costs on the new jet, which is slated to enter service next year.
A Bombardier spokeswoman declined comment. A spokeswoman for Quebec’s economy minister was not immediately available for comment.
A similar deal with European aircraft giant Airbus Group SE fell apart earlier this month when news of the talks leaked.
In a note to clients on Tuesday, Sterne Agee analyst Peter Arment noted that CSeries program development costs have already topped $5 billion and he expects that another $2 billion in cash will be required to finish certification and absorb the ramp in production in the first three years.
That would mean Quebec would potentially front up to $1 billion or more in order to fulfill its side of the deal.
The stock gained 4pct after the Reuters report, and was last up 8.3 percent at C$1.57.
Bombardier which suspended the development of its Learjet 85 business aircraft in January, is likely to confirm 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.
The company said in January that demand for the new Learjet had been weak, and that demand for light aircraft in general had been depressed since the economic downturn.
The company’s 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 also 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.
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.
Additional reporting by Allison Lampert in Montreal, Tim Hepher in Paris, Mike Stone in New York, Euan Rocha and John Tilak in Toronto; Editing by Amran Abocar and Nick Zieminski