Quebec invests $1B as Bombardier posts $4.9B loss

The Quebec government is stepping with a $1 billion (U.S.) cash injection to help Bombardier Inc. get the struggling CSeries jet program off the ground.

But just as company executives touted the investment, which will give Quebec a 49.5 per cent stake in a new joint venture, they acknowledged that the jet program won’t become profitable until 2020 or 2021 at the earliest.

Bombardier will need to spend an additional $2 billion (U.S.) in the coming years before the production line begins to make money. It took a $3.2 billion (U.S.) write-down on Thursday, on the costs of developing the plane, essentially signaling it doesn’t expect to recoup that money.

In Toronto, unionized workers who build the Q400 turboprops at the Downsview plant rejected a proposal that would outsource work on the wing and cockpit to Mexico and China.

The company is looking for ways to cut costs and be more competitive – especially since rival ATR, a joint French-Italian venture, has been drastically cutting prices, said union leader Merv Gray.

Gray said he endorsed a plan to offer buyouts to about 200 employees as a part of a strategy to protect assembly jobs in Toronto. But it was soundly rejected by 70 per cent of the Unifor Local 112 membership on the weekend.

“It was short-term pain for long-term pain,” he said. “We took a responsible position for the long-term viability of the program.”

Bombardier spokeswoman Marianella de la Barrera declined to comment on specific discussions, saying only that “we are looking at various initiatives to make our products more competitive.”

Quebec Economy Minister Jacques Daoust told reporters in Montreal that the aeronautics industry is the crown jewel in Quebec’s economy, noting salaries are double the provincial average.

George Ferguson, senior aerospace analyst for Bloomberg Industries, said the move will give Bombardier the chance “to fight another day,” but big questions still remain.

“It’s good to find someone to put the money in, but it hurts the existing shareholders, who spent a lot of money,” he said, adding the Quebec government picks up half of the CSeries program for $1 billion.

The agreement gives Quebec a direct say in the development of the CSeries plane as well as a 20-year guarantee Bombardier will keep its headquarters and its manufacturing and engineering facilities in the province.

That’s assuming the orders for the 100- to-150 seat jet, the biggest Bombardier has ever made, start to pour in.

So far, the program has been plagued by delays and cost over runs, with few major airlines signing on the dotted line. Even though Bombardier says it is talking to potential customers, there hasn’t been a single order for a year.

It has 243 firm orders, short of its goal of 300 orders by entry into service, which is slated for first half of next year.

The company says flight testing for the plane is almost 97 per cent complete, with certification “imminent,” and the assembly line in Mirabel busy working on production planes for first customer Swiss Air Lines.

Bombardier reported weak third-quarter earnings on Thursday, which includes its transportation division. Overall, it was a $4.9 billion (U.S.) loss, including the $3.2 billion charge for CSeries tooling and $1.2 billion charge for abandoning the Learjet 85 light aircraft program.

On an adjusted basis, net income was only $2 million in the quarter, on revenues of $4.1 billion, compared with a net income of $222 million for the same period a year ago.

During a conference call with analysts, CEO Alain Bellemare who took over in February from Pierre Beaudoin, grandson of the company’s founder, was bluntly asked: “How did things get so bad?”

“We had multiple programs running in parallel, and that was very challenging for an organization of our size,” Bellemare said, pointing to upgrading the Challenger jet, the Learjet 85, and development plans for the Global 7000/8000 business jets.

“The organization was overwhelmed by the number of programs. It is much different today,” he said, noting the Challenger project is completed and the Learjet85 has been cancelled.

Karl Moore, a McGill University business professor, said Quebec’s investment will be “enormously helpful,” and gives the company some breathing room.

The company is still seeking a buyer for a minority stake of its rail division Bombardier Transportation, which has been under fire in Toronto for long delays for its streetcars.

Moore added that other aerospace manufacturers like Airbus or Embraer have considerable government help, so it’s good that Bombardier is getting some help.

“If you want to play in the big leagues, it seems you need that,” he added.

With files from Star wire services

Breakout items:

CSeries

Learjet 85

In January, Bombardier shelved development plans for its small, light aircraft Learjet 85, first begun in 2007, saying it would resume the project when a better market emerges. But Bombardier CEO Alain Bellemare said the market wasn’t returning, so the company is scrapping the program and taking a $1.2 billion (U.S.) charge.

Global business jets

Demand for business jets is slowing, so the company is revising its original plan to build 80 planes this year. It has now revised it to 50 jets, which is a $1.2 billion impact to the bottom line in 2015. Officials will give an update next week on the Global 7000/8000 aircraft program, now under development.

Q400 turboprops

Demand for the Q400 turboprop, which is built at Bombardier’s Downview plant, has been weak, with only five planes delivered at the end of September. The company has been facing stiff competition from ATR, a joint Italian-French venture. The company has proposed outsourcing some work, which the union membership has rejected.

TTC streetcars

The TTC is suing Bombardier for a long-delayed streetcar order of 204 vehicles. So far, only 10 streetcars are running on the Spadina and Harbourfront lines. Originally, 73 were supposed to be in operation by the end of the year, but it was revised to 20. Now, Bombardier says it can’t meet that goal either.

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