Bombardier snubbed in Caisse Montreal project as costs overrun

TORONTO (Reuters) - Bombardier on Thursday missed out on a contract to provide rail cars for one of the world’s biggest light rail systems in Montreal, a project led and financed by its biggest shareholder.

France’s Alstom and its partner SNC-Lavalin were awarded the contract, worth more than C$1 billion ($793 million), by Quebec’s public pension fund following a tender process overseen by an independent committee. The Caisse holds a 30 percent stake in Bombardier’s rail business.

The decision is a blow to the Quebec-based plane and trainmaker, which is in the middle of a five-year turnaround plan to cut costs and boost margins after years of heavy investments in its CSeries jet pushed it to the brink of bankruptcy in 2015.

“We understand and share the disappointment our employees have about this announcement,” said Benoit Brossoit, Bombardier Transportation’s president for the Americas region.

The Caisse also said a consortium led by SNC Lavalin had won a contract worth around C$5 billion to provide engineering, procurement and construction for the Montreal rail line. The Caisse is one of SNC-Lavalin’s largest shareholders.

Shares in Bombardier were down 1.5 percent in afternoon trade while Alstom was down 1.6 percent. SNC-Lavalin was flat.

Alstom has stolen a march over its Canadian rival in recent months. It clinched a transformational merger with Siemens AG last September after Bombardier had appeared close to a tie-up with the German company, leaving the Canadian firm struggling to find a partner that will enable it to compete with the combined Alstom-Siemens and Chinese rivals.

Ontario transit agency Metrolinx cut its vehicle order from Bombardier by more than half last year having awarded a C$528 million contract to Alstom. Australia’s Queensland state government also suspended deliveries of Bombardier trains amid accusations of design faults while the Canadian firm missed out on a lucrative New York subway contract.

The Caisse said the total cost of the 67 km (42 mile) public transit system had risen for a second time and was now expected to total C$6.3 billion ($5 billion), C$800 million more than initially expected. Completion has also been delayed by a year until 2021.

The project breaks with a tradition of pension funds preferring to invest in infrastructure which is already built and is seen as a test case by other funds mulling whether to develop skills to manage the building of new infrastructure.

The Caisse will own and operate the track which will link several Montreal suburbs to downtown and Montreal’s Trudeau International Airport once it has been built.

The Caisse said that construction will begin in April with initial testing of the track to be conducted at the end of 2020.

Reporting by Matt Scuffham; Editing by James Dalgleish and Tom Brown