Bombardier reports loss, confirms Quebec investment

MONTREAL-Amid fierce criticism from the opposition that the Quebec government unduly risked $1 billion United States dollars of taxpayer money on a struggling aircraft, provincial leaders justified their decision on Thursday by saying aerospace giant Bombardier is too important to fail.

The company’s B shares were at $1.50 early Wednesday. They follow confirmation in early October that talks had ended on Airbus potentially taking a controlling stake in the CSeries program.

The company had said earlier in the year that it was “pausing” the program, citing weak market conditions. “With this investment we are more confident in our capacity to bring production to fruition”. “And we are going ahead with the CSeries, and it’s going to a big success for all Quebecers”.

The Montreal-based company lost $4.9 billion, the third-worst loss by a Canadian company since the third quarter of 2007, after writing down its CSeries jetliner, which has been plagued by delays and bleeding cash. Revenue had been estimated at just under US$4.6 billion, according to Thomson Reuters. The investment has been approved by the Quebec cabinet, but requires regulatory approval. Cost of this program has now inflated to $5.5 billion from the original forecast of $3.4 billion. The equity infusion from Quebec will provide half the funds required. In May 2015, Bombardier teamed up with Pratt & Whitney, a unit of United Technologies Corporation, to develop and implement a data management service for the aircraft.

“This partnership comes at a pivotal time, with the C Series on the verge of certification”, said Alain Bellemare, president and chief executive of Bombardier.

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.

But the company’s shares have declined 66 per cent in the last 12 months and have underperformed the TSX by 58 per cent. They fell sharply again Thursday as investment professionals and portfolio managers didn’t think much of Bombardier’s prospects even with the government deal. “This move will also keep C Series operations here in Quebec for at least another 20 years”, said Quebec’s Minister of Economy, Innovation and Exports, Jacques Daoust, in a separate statement. This will come in two equal installments, in April and June 2016.

Meanwhile, Bombardier has installed the first GE Aviation Passport engines on the Global 7000 business jet, which is being prepared to enter flight test. A ground testing rig has been commissioned to validate the flight control software and systems needed to begin the flight-test campaign.

While the “re-engined” models don’t quite match the potential cost-savings promised by the CSeries, which also incorporates lightweight carbon fibre components in its design, the refurbished planes have proven to be an attractive alternative for airlines who remain uncertain about Bombardier’s ability to deliver in a brand new segment.