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Skies Brightening for Bombadier C-Series Jet

March 3, 2016
Canadian Prime Minister Justin Trudeau says the government wants to make sure the plane is a success story. Will aid be forthcoming?

Canadian Prime Minister Justin Trudeau has nothing but praise for Bombardier Inc.’s struggling C Series jet, saying it’s a superior plane that his government wants to become a national success story.

“One of the great things that we’re very, very aware of is the C Series is a superlative product,” Trudeau said in an interview Wednesday in Vancouver. “You look at everything people have written about it, it’s going to be an extraordinary airplane, so our question is very much, well, how do we make sure that airplane is a success and how are we making sure it is a Canadian success story?”

Trudeau’s comments -- which sent shares higher in early trading -- come as his government considers a request for aid by the Montreal-based manufacturer for the plane, which is beset by delays, weak demand and $2 billion cost overruns. Quebec has already committed $1 billion for a minority stake in the C Series program, and it wants Trudeau’s federal government to match that.

Trudeau, who swept to power in October elections, declined to say when a decision will be made on Bombardier’s aid request. He heaped praise on the plane itself, and signaled strong support for the broader aerospace industry, which employs about 42,000 people in his home province of Quebec alone.

Trudeau’s comments reinforce the likelihood that Canada will step in, according to Kevin Dusseldorp, an analyst at Veritas Investment Research Corp.

‘Crucial Help’

“It does seem like that is something that’s reasonably expected to happen,” Dusseldorp said in telephone interview from Toronto Thursday. “Based on the amount of cash they’ve been burning on the C Series project to date, management sees federal government help as crucial to executing fully on the program.”

Alain Bellemare, Bombardier’s chief executive officer, told analysts Feb. 17 the C Series will need about $2 billion in additional financing before the program can start generating cash flow around 2020. The program has already cost Bombardier about $5.4 billion, according to the company’s most recent published estimate. John Paul Macdonald, a spokesman in Montreal, declined to comment on Trudeau’s remarks, saying via e-mail talks with the federal government “are progressing.”

Bombardier shares rose 10% to C$1.225 at 11:19 a.m. Toronto time, paring the 12-month decline to 47%.

Firm Orders

Bombardier says the C Series, which features composite wings and a new Pratt & Whitney engine, will cut fuel consumption by more than 20 percent compared to competing models and produce less noise. The smallest of two variants of the jet is due to enter commercial service by the end of June.

The C Series, which has been stuck at 243 firm orders for more than a year, got a boost last month when Air Canada signed a letter of intent to buy 45 jets with an option for 30 more. Bombardier has targeted 300 firm orders by the time the aircraft goes into service.

Trudeau called the Air Canada sale “wonderful news” and expressed conviction other sales will follow. “People will really see that wow, having this Canadian plane is going to be something that more and more carriers around the world are going to want."

Still, less than two weeks after the Air Canada order, Bombardier suffered a setback when Republic Airways Holdings Inc., which accounts for 16 percent of the firm C Series orders, sought creditor protection in New York. Bombardier also announced plans last month to eliminate 7,000 jobs over two years, including 2,400 in Quebec.

Further cost overruns tied to the C Series “above and beyond what management has talked about” are possible, said Dusseldorp, who advises investors to sell Bombardier shares.

“Just look at the history of this whole program,” he said. “Given the relatively low number of firm orders, that’s where the need for some of the external cash comes in.”

Trudeau’s government is said to have concerns about Bombardier’s dual-class share structure, which allows its founding Beaudoin-Bombardier family to control the company while holding only a minority stake. He sidestepped questions on the share structure and acknowledged the company is facing a host of challenges.

“We’re digging into all sorts of different aspects of it, because we want to make the right decision not just for the short-term but the long-term,” he said. “We’re taking this challenge Bombardier is facing very, very seriously.”

Provincial Support

Trudeau, 44, is due to meet with Canadian premiers later Thursday, and two of them expressed support for Bombardier in a press conference Wednesday in Vancouver. Quebec Premier Philippe Couillard said he expects Trudeau to deliver aid.

“This aeronautical company in particular, and the C Series in particular, are probably the most important innovative projects now in Canada that will benefit all of Canada,” Couillard said. Competitors “Airbus and Boeing are not giving them any leeway, any room. They don’t want a new player. But we have a new Canadian player.”

Ontario Premier Kathleen Wynne also expressed support, saying Bombardier is “an important national company” but stopped short of calling specifically for Trudeau to step in. Bombardier’s aerospace facilities employ about 3,700 people in Ontario, according to company figures.

Trudeau cited the quality of jobs, the type of innovation, the kinds of world-class products that “Canada can and should be known for,” as reasons for his faith in the nation’s aerospace industry. Bombardier “is facing both short-term, medium-term and long-term challenges and that’s the lens we’re taking on this decision of how we can move forward, how we should move forward with this.”

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