Bombardier, Textron Jump on Report of Private-Jet Deal Talks

(Bloomberg) -- Bombardier Inc. jumped on a Wall Street Journal report that the Canadian maker of planes and trains is in talks to sell its private-jet unit to Textron Inc., which makes Cessna planes. Textron also surged on speculation that a deal would bolster its luxury-aircraft business.

The negotiations have been going on for several weeks, and the terms of the potential transaction are unclear, the Journal reported Tuesday, citing people familiar with the matter. There’s no guarantee that the discussions will result in any agreement, the newspaper said.

Bombardier declined to comment. Textron didn’t immediately respond to a request for comment.

A deal would provide a welcome cash injection for debt-laden Bombardier while removing what Chief Executive Officer Alain Bellemare had touted as a pillar of the company’s future. Once a Canadian industrial champion, Bombardier has also held talks to combine its rail unit with France’s Alstom SA and may exit a joint venture with Airbus SE to make the A220 jetliner. Bombardier agreed last year to sell its regional-jet business to Mitsubishi Heavy Industries Ltd.

Bombardier jumped 18% to C$1.53 at the close in Toronto, the biggest gain in almost a year. The shares fell 33% this year through Monday, the worst drop on Canada’s S&P/TSX Composite Index, after Bombardier warned of disappointing sales. The company also said it may exit the A220 program and warned of a possible writedown.

The company’s 7.85% bonds due 2027 climbed 1.3 cents to 97 cents on the dollar, yielding 8.5%, according to Trace data. Bombardier reported adjusted debt of more than $10 billion as of Sept. 30.

Textron surged 10% to $50.90, the most in six years.

Valuation Estimate

Sheila Kahyaoglu, an analyst at Jefferies, valued Bombardier’s private-jet business at $6.7 billion. She said other makers of luxury aircraft would benefit from “increased price discipline” if the Montreal-based company reached a deal to sell.

Textron would benefit by adding Bombardier’s large-cabin aircraft to a lineup of smaller jets and propeller planes, said Brian Foley, a business aviation consultant based in Sparta, New Jersey.

The industry is “definitely overcrowded” and needs consolidation, Foley said. There are about seven manufacturers offering 40 different aircraft in an industry that ships less than 700 planes a year, he said. In 2007 and 2008, annual deliveries topped 1,000 jets.

“It’s been more than a decade since the go-go times of the industry and it’s been relatively stable and even stagnant since,” Foley said. If Bombardier and Textron reach a deal, “it doesn’t totally fix the problem, in my view. But it would help.”

Textron would be buying Bombardier just as the Canadian planemaker ramps up shipments of its flagship Global 7500, the largest corporate jet, which began delivery in December 2018. Bombardier struggled with a two-year delay and cost overruns to produce the jet, which has a price tag of $73 million.

General Dynamics Corp.’s Gulfstream division and Paris-based Dassault Aviation SA make planes that compete directly with Bombardier’s Global series of business jets. Embraer SA plans to retain its private-jet and defense operations after combining its commercial-aircraft business with Boeing Co.

Rail Talks

In rail equipment, Bombardier’s talks with Alstom have slowed down, partly over the valuation of an operation that has had production stumbles, the Journal said.

The Canadian company’s openness to parting with its private-jet business signals a weaker outlook for the rail division, said Bloomberg Intelligence analyst George Ferguson. A deal with Providence, Rhode Island-based Textron would probably include Bombardier’s Global and Challenger lines of luxury aircraft. Its smaller Learjet planes have been fading.

The Textron negotiation “affirms our view that rail cash flow will be weak over the next few years, requiring divestment of assets to pay down debt with maturities beginning in mid-2021,” Ferguson said in a report. “We expect a sale would include large jets such as the Global and Challenger lines, as Lear won’t garner much cash.”

©2020 Bloomberg L.P.

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