Bombardier sells Toronto assembly site for $635 million in major makeover
Deal with Canadian pension fund boosts cash position, brings firm closer to goals
Bombardier Inc. is bolstering its cash position with the sale of its Downsview facility in northern Toronto for US$635 million, a move that brings the company closer to reaching the financial targets set out in its five-year turnaround plan.
Bombardier, which reports its financials in U.S. dollars, announced Thursday that it had entered into a definitive agreement to sell the Downsview site for US$635 million to the Public Sector Pension Investment Board, a $139-billion fund that invests retirement savings for the Public Service, the Canadian Forces and RCMP, among others.
The deal is expected to close in the second quarter of this year and the net transaction cost will increase the company ’s cash position by more than US$550 million, the plane and train maker said.
Chief executive Alain Bellemare said the sale allows the company “to monetize an underutilized asset, further streamline and optimize business aircraft operations and will support further economic development and job growth in the Greater Toronto Area.”
“Today, we only use about 10 per cent of a 370-acre site at Downsview and bear the entire cost of operating a 7,000-foot runway,” Bellemare said in a statement.
The company said it has also reached an agreement with Greater Toronto Airports Authority to lease 38-acres at Toronto’s Pearson Airport for its final assembly plant for its business jet program, although it will operate out of the Downsview facility for up to three years after the deal closes. The Toronto site is where Q400 turboprop planes are assembled and one of four final assembly sites used by the company.
Bombardier executives did not say where Q400 production would move after the Downsview land is taken over, but reiterated that the company is committed to the turboprop program. “We have five years that we can keep operating the (Q400) in Downsview and we will be looking at all of our options,” Bellemare told analysts on a conference call after the release of the company ’s first quarter results.
Unifor, which represents approximately 3,600 Bombardier Aerospace employees who work at the Downsview facility, was against the sale over concerns about job losses. Unifor president Jerry Dias said that Bombardier had a purchaser lined up for the Q400 program, but ultimately decided the turboprop would remain in the company.
“The bottom line is that the program isn’t going anywhere,” Dias said. “For us, to solidify the assembly of the Global jets and complement it with the (Q400), we’re in as good of shape as we can be. Am I thrilled about the change of location? The answer is no ... But the key thing is that we’re in good shape for the long-term.”
The sale is the latest in Bellemare’s five-year turnaround plan that aims to hit revenues of US$20 billion and free cash flow of between $750 million and $1 billion a year by 2020. In March, the company took advantage of its improved stock performance and completed a share issue that raised US$500 million, bringing its recent equity raises to more than $1 billion.
Bombardier’s chief financial officer, John Di Bert, told analysts on a conference call Thursday morning that the improved cash position will provide the company with operating flexibility moving forward.
“We always had an eye on being fully performing and delivering our cash-flow breakeven this year,” Di Bert said. “Once we get past 2018, we’ll have the opportunity to allocate this capital properly with the greatest return. There are many options for us at this point in time.”
An option, National Bank of Canada analyst Cameron Doerkson said in a note to clients, is to repurchase the Caisse de dépôt et placement du Québec stake in Bombardier Transportation, the firm’s most profitable division. “We believe the repurchase of the CDPQ’s stake in BT is a high priority for management and we further estimate the company may have enough liquidity to complete the transaction in 2019,” Doerkson said.