Bombardier’s Shaky Future Puts Novice Premier in Dicey Deja Vu
(Bloomberg) -- Bombardier Inc. has Quebec in a bind again.
As the debt-laden plane and train maker explores selling one of its core businesses and exiting a jetliner venture with Airbus SE, its home province is feeling the need to get involved again -- but not at any cost.
Unwilling to add to the $1 billion his predecessor invested in the plane program now known as A220, Premier Francois Legault is exploring alternative tools to preserve thousands of jobs, in what’s shaping out to be his biggest economic test yet.
He’s walking a fine line. A self-described nationalist whose Coalition Avenir Quebec party rose to power for the first time 16 months ago, Legault has vowed to close the income gap with wealthier Ontario and keep corporate head offices in Quebec. Yet he can’t been seen as too generous with Bombardier’s management, whose image has been tarnished after awarding itself generous pay bumps while cutting jobs, receiving government aid, and failing to turn the company around.
“Bombardier: their failure, your bill,” an editorial at Montreal-based La Presse editorial read last month.
“Public opinion has lost some of its sympathy for Bombardier,” said Michel Nadeau, a former deputy chief executive officer at the Caisse de Depot et Placement du Quebec, the province’s influential pension fund manager. “The Legault government can’t step in with big amounts -- if they help, it has to be small.”
Bombardier said in a statement it currently has no request for help before the Quebec government.
A Canadian industrial champion with roots in snowmobiles before acquisitions turned it into a major builder of jets and subway cars, Bombardier has been a source of pride and a major employer in Quebec. Yet its glory days are now behind it as it focuses on reducing a $10 billion debt load that can partly be traced back to the C Series, a single-aisle jetliner that ran into multiple delays and overruns.
Airbus gained control of the program in 2018 at no cost, renamed it the A220 and now employs 2,700 workers at the Mirabel plant, 53 kilometers (33 miles) outside Montreal.
The deal took power away from Quebec, which had poured $1 billion into the program just two years earlier in exchange for a 49% stake but saw its share shrink to about 16% with the entry of Airbus. Investing directly in the plane rather than the company as a whole was a “serious mistake” by the Liberal government that now leaves little say to its successor over asset sales, said Legault.
“We’re in a situation that’s not easy,” Legault, a former businessman who co-founded leisure airline Air Transat, told reporters Feb. 5. “We’re currently looking at ways to protect jobs without investing too much of Quebeckers’ money.”
There’s no obvious solution. The company has received billions in loans, tax credits and equity injections from federal and provincial governments over the years, including C$596 million in reimbursable loans that it says it has completely paid back. And it’s trying to reduce debt. Short of a massive cash injection -- which Economy Minister Pierre Fitzgibbon ruled out as “not appropriate”-- Bombardier has little choice but to downsize.
The company has already sold assets in recent years, including in a pending deal for its CRJ jet unit with Mitsubishi Heavy Industries Ltd. It said last month that it is rethinking the program with Airbus, which calls for more cash and may prompt a writedown. It discussed combining its rail unit with France’s Alstom SA. According to the Wall Street Journal, it’s in talks to sell its private-jet unit to Textron Inc. and its remaining A220 stake to Airbus. Quebec would retain its 16% stake, the Journal reported.
“The story of Bombardier has been a multiple car pile up because people just won’t look away,” said John O’Connell, chief executive officer of Toronto-based Davis Rea Ltd., who doesn’t own the stock. “And governments are the same as any other investor: prone to driving into the back of previous crash victims.”
Bombardier Back to Brink After Rethinking Airbus A220 Deal
Quebec is not entirely powerless. The Caisse paid $1.5 billion for a 30% stake in the rail division in 2016 and will likely weigh in as Bombardier considers a tie up with Alstom SA. While technically independent, the Quebec savings’ manager follows a twin mandate commanding it to contribute to Quebec’s economic development. It declined to comment on any further investment.
Legault said the train unit has a lot of potential as public transportation orders are set to jump in coming years. For now though, most Bombardier jobs in the province can be found in aerospace, with a staff of about 10,800 employees, against 1,500 in rail.
The province is the world’s third-largest aerospace hub, with about than 43,378 positions and 191 employers as of Jan. 1, according to CAMAQ, an industry group focused on labor and training. That expertise means that jobs are likely to stay in Quebec in the short to medium term even if Bombardier drops the Airbus venture or sells the business jet unit, said Karl Moore, a professor of management strategy at Montreal’s McGill University.
It’s the well paying corporate jobs and the related business for lawyers or accountants that may go away, he added, a move reminiscent of the 1970s and 1980s, when fears of Quebec separatism drove companies away from Montreal. Legault has often lamented head office losses due to acquisitions, such as Lowe’s Cos.‘s purchase of Rona Inc.
The provincial government’s popularity hovered at 60% last month, according to a Leger poll commissioned by Legault’s party. A misstep on Bombardier could put an end to the extended honeymoon.
“You don’t want to be a Quebec government who loses jobs in Quebec,” Moore said.
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