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Bailout would cut Bombardier's CSeries jet stake

MONTREAL, February 27, 2016

A proposed Canadian government bailout of Bombardier Inc's new CSeries jet manufacturing program would reduce the company's stake in the money-losing aircraft, taking it off the plane maker's books and boosting results in the short-term, two sources familiar with the matter said.

The federal government is considering a deal that would give Canada, the Quebec government and Bombardier each a one-third stake in the CSeries, which would be carved out as a separate joint venture with its own board, said the sources who spoke on condition of anonymity because the talks are confidential. Currently, Bombardier controls 50.5 percent of the CSeries and Quebec 49.5 percent.

Federal officials familiar with the situation stress it is too early to say whether a separate CSeries board would be part of a bailout of Bombardier. Prime Minister Justin Trudeau has said his Liberal Party government would announce a decision before the federal budget on March 22.

Such a deal would allow Montreal-based Bombardier to alter the way it accounts for the CSeries business, which is costing at least $5.4 billion to develop and launch and which the company doesn't expect to generate returns for another four years or more.

The proposed structure would have a positive effect on the parent company's cash flow and earnings per share for the next three to four years, said one of the sources.

The company has forecast 2016 revenue of $16.5 billion to $17.5 billion. Those figures bake in anticipated revenue from about 10 CSeries jet deliveries this year, according to one analyst.

The loss of revenue because of deconsolidation would be more than offset by a reduction in CSeries costs and its cash burn rate in the parent company's accounts.

Canada is leaning towards matching Quebec's $1 billion CSeries injection of funds through a deal that could give the federal and provincial governments joint majority control of the 100-150 seat jet program. The first of the jets, the smaller version, is entering service in 2016 after years of delays and cost overruns.

New jet programs typically take years to sell and deliver enough planes to break even and recover sunk development costs.

The federal government is not expected to invest directly in Bombardier itself, as opposed to the CSeries program, and there is no expected change to the company's dual class structure that favors the founding Bombardier-Beaudoin family, both sources said.

Within the government, there are some concerns about the parent company's shareholding structure, which gives the family a roughly 54 percent voting stake, said a person familiar with Ottawa's approach. The founding family has pushed back against any changes to the company's governance, he said.

A key member of the family, Bombardier's previous Chief Executive Pierre Beaudoin, launched three different plane programs at about the same time and the resulting draining of the company's cash is a major reason for its current problems.

The investment model, proposed by Quebec and supported by Bombardier, would give the federal and provincial governments a combined four seats - provided Canada matches the province's $1 billion investment - on the seven person CSeries board, Reuters reported on Wednesday.-Reuters




Tags: Stake | Bombardier | CSeries jet |

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