Canada’s government will provide C$372.5 million (US$282 million) in support for Bombardier Inc. (IW 1000/220) to help fund two jet programs including the C Series, the single-aisle plane that competes with Boeing Co. and Airbus Group SE products.
About a third of the so-called “repayable program contributions” will go to the C Series while the rest will bolster the Global 7000 business jet, Chief Executive Officer Alain Bellemare said Tuesday at a news conference in Dorval, Quebec. The interest-free funds will help secure thousands of jobs in Canada, Innovation Minister Navdeep Bains said.
“I believe Bombardier is indeed back,” Bains said. “Our investment today is a vote of confidence in the talents of the skilled Canadians who work in this sector, who work in this company.”
The federal assistance gives Bombardier an additional cushion while falling far short of the $1 billion in aid the company sought more than a year ago, as it struggled with production delays and cost overruns in its marquee C Series program. After landmark sales of the jetliner to Air Canada and Delta Air Lines Inc. in 2016, the company is now seeking new orders while also targeting the first delivery of the Global 7000, its largest business aircraft.
“This is one more step to reduce risk,” said Chris Murray, an analyst at AltaCorp Capital in Toronto. “The question is how big a difference this will make: C$372 million over years for a company that has more than $1 billion in capital expenditures annually isn’t a whole lot.”
The money, provided free of interest, will be disbursed over four years, according to a statement by the government.
The funding may resolve the long-simmering discussion on aid before it can become a thorn in any new talks with the U.S. government on the North American Free Trade Agreement, which President Donald Trump has vowed to renegotiate.
Bellemare said the Canadian assistance would enable Bombardier to “weather near-term market challenges” and develop new jets. He declined to specify what kinds of new planes the company might study after the Global 7000. A potential larger variant of the C Series, dubbed the CS500, isn’t on the table at the present time, Bellemare said.
The Montreal-based maker of planes and trains didn’t factor any government aid into its five-year plan, Bellemare said. The company has a combined $1.45 billion in debt due in 2019 and 2020.
Bombardier’s widely traded Class B stock has jumped 34% since Dec. 14, the day before the manufacturer said at an event in New York that sales and pretax profit would rebound in 2017. The S&P/TSX Composite Index advanced 2% during the same period.
Profitable Business Jets
The Global 7000 will be Bombardier’s biggest business jet, a product category that has traditionally been the company’s most profitable. The plane took its first flight last year and is due to enter service in the second half of 2018.
The C Series was two-and-a-half years late and more than $2 billion over budget when it made its commercial debut at Deutsche Lufthansa AG’s Swiss International unit in July. Since then, the jet has been performing better than expected, the airline said as recently as December.
The two aircraft programs will support approximately 5,000 jobs, according to the government. Bains said job guarantees are “part of the commitment.”
Canadian Trade Minister Francois-Philippe Champagne, speaking at the same news conference as Bains and Bellemare, said the government would defend any trade challenge to its support for Bombardier. Brazil has said it will challenge Canada’s support for the aeronautical industry before the World Trade Organization, a move that drew praise from Brazilian planemaker Embraer SA.
“I am very much prepared to defend what we are doing tonight,” Champagne said.
The company initially sought $1 billion in aid, a level of investment already committed by the province of Quebec. Prime Minister Justin Trudeau’s team wanted governance changes in return, including to the dual-class share structure that allows the company’s founding Bombardier and Beaudoin families to control the firm without holding a majority stake. Bombardier rejected the federal government’s initial pitch.
The company has since said talks were “taking a different path,” and Trudeau said he hoped to make an announcement before unveiling Canada’s next federal budget. A date for the budget hasn’t been announced, though it is expected as soon as this month.
By Josh Wingrove and Frederic Tomesco