Another Taxpayer-Funded Bailout, This Time For A Canadian Private Jet Maker

Once more in this new normal in which we 'live', the necessary creative destruction of capitalism is eschewed in favor of saving a zombie company that the CEO admitted was "overwhelmed." The good news for American taxpayers is that it is Canadian taxpayers - via a generous $1.3 billion 'investment' by the Quebec government - that are bailing out private-jet-maker Bombardier. Following aircraft projects plagued by overruns, missed deadlines, and scant interest from airlines, Bombardier posted a $4.9billion loss in Q3. Well never mind that, Quebec taxpayers now own 49.5% of the challenged CSeries program.

As Bloomberg reports, Bombardier Inc. will get a Quebec government rescue of as much as $1.3 billion as the struggling planemaker prepares to pump in even more cash into the tardy, over-budget CSeries jetliner.

Quebec will take an equity stake in Bombardier and invest $1 billion into the CSeries, which will need an additional $2 billion in spending during the next five years. The company also posted a $4.9 billion third-quarter loss Thursday and said it’s close to the sale of a minority stake in its train unit to unidentified investors.

 

Bombardier used $816 million of free cash flow in the quarter, exceeding the $551 million average of five analysts’ estimates compiled by Bloomberg. The figure is more than double the $368 million used in the same period last year.

 

Quebec agreed to buy 49.5 percent of the CSeries program. The province also is poised to become the largest holder of the Class B stock, with warrants to purchase as many as 200 million shares for C$2.21 each. That would be 37 percent more than Wednesday’s closing price -- which already reflected a 61 percent plunge this year, the worst performance among Canadian industrial companies.

The province’s rescue and Bombardier’s disclosures underscored the sweeping financial strain from an aircraft plagued by overruns, missed deadlines and scant interest from major airlines. With Bombardier also reeling from setbacks with two new business jets, analysts used a conference call with management to demand answers to a basic question: How did things get so bad?

“The organization was overwhelmed by the number of programs,” Chief Executive Officer Alain Bellemare, who took over in February, said on the call. “We had multiple programs running in parallel, and that was very challenging for an organization of our size.”

In exchange for the investment, Bombardier agreed to keep the headquarters of the CSeries partnership -- as well as a variety of activities, including manufacturing -- in the province for 20 years.

So far it has done little to assuage equity investors' fears...

 

And Bombardier CDS implies a 60% probability of default (given standard recovery assumptions).

As Fadi Chamoun, a BMO Capital Markets analyst, notes...

“This partnership and liquidity injection from the Quebec government helps but does not fully resolve the liquidity issue and the high financial leverage burden,

 

Bombardier “still needs to sell assets to fund capital requirements over the next two years and deliver a credible strategy to improve the profitability if the business aircraft and transportation divisions.”

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Thank you Quebec taxpayers...

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