Premium #194 – QUEBEC’S INVESTMENT IN BOMBARDIER – WHAT IT REALLY MEANS

The province of Quebec has come to the rescue of Bombardier, investing $1 billion in cash, while receiving warrants for potential future investment at an attractive price. This investment should provide adequate funding for Bombardier to complete the CSeries and get over the hump in the near term to bring the aircraft to cash flow neutral within 3 years and cash flow positive thereafter.

• Is the Quebec investment a bailout, or a strategic investment that could pay off well for the Province?

Let’s examine some of the details of the transaction. The basic transaction creates a limited partnership between Quebec and Bombardier

for the CSeries program, into which assets, liabilities and obligations will be transferred. The $1 billion investment provides Quebec with a 49.5% equity stake in the CSeries program, leaving 50.5% for Bombardier. This investment will be utilized only for the CSeries program, in which both entities will participate as risk sharing partners. It looks a bit like a hybrid to us – with the upside presenting an opportunity for Quebec.

• Is $1 billion compensation enough for almost half of the CSeries program?

Bombardier has spent in excess of $5 billion and has brought the aircraft to the brink of certification now 97% complete and expected later this year, and entry into service, which is expected in the first half of next year. Bombardier plans to deliver 15 CSeries aircraft in 2016. Most analysts believe Bombardier will need approximately $2 billion for the program. With the additional $1 billion, and a likely transaction on the train side, Bombardier is now confident that it can successfully bring the program to profitability in three years.