Bom­bardier ‘in no rush’ to land rail deal, Belle­mare says

The Globe and Mail Metro (Ontario Edition) - - Report On Business - NI­CO­LAS VAN PRAET

Bom­bardier Inc. faces no ur­gency in strik­ing a rail deal of its own fol­low­ing Siemens AG’s an­nounce­ment in Septem­ber that it chose France’s Al­stom SA as a merger part­ner, its chief ex­ec­u­tive of­fi­cer says.

“This is a chess game,” Alain Belle­mare told an au­di­ence Tues­day at an in­vest­ment con­fer­ence in Bos­ton or­ga­nized by Goldman Sachs. “There’s one move here, there’s an­other move there but you need to keep your eye on the game. And the good news for me right now is we are in no rush to make a move. I mean, I would rather keep as­sess­ing all the op­tions, all pos­si­bil­i­ties, see where things could go or what could hap­pen.”

Con­firm­ing pub­licly for the first time Bom­bardier was in talks with Siemens about a merger, Mr. Belle­mare said he sees no change in the com­pet­i­tive land­scape that would force Bom­bardier into a part­ner­ship in the short term. He said Euro­pean ri­vals will take time to win reg­u­la­tory ap­proval for their merger and longer to com­bine their op­er­a­tions.

The CEO is lead­ing a five-year turn­around ef­fort that has seen his team slash costs and raise money to get the flag­ship C Series com­mer­cial air­liner to mar­ket.

The com­pany last month reached an agree­ment to part­ner with France’s Air­bus Group SA to help mar­ket and build the plane.

Profit mar­gins for the com­pany’s train busi­ness, one of its two most im­por­tant seg­ments to­gether with pri­vate air­craft, came in at 8.5 per cent in its lat­est quar­ter as man­age­ment re­duced the work­force and boosted sales. Bom­bardier is work­ing to im­prove con­tract ex­e­cu­tion in the train busi­ness while book­ing more con­tracts that use ex­ist­ing de­signs.

An­a­lysts have said the Siemen­sAl­stom merger sig­nif­i­cantly nar­rows the strate­gic op­tions for Bom­bardier Trans­porta­tion, as Bom­bardier’s rail di­vi­sion is called, as the Cana­di­an­con­trolled com­pany tries to im­prove its global stand­ing. The mar­riage of Ger­many’s big­gest train busi­ness with France’s big­gest cre­ates what will be Europe’s dom­i­nant rail man­u­fac­turer with com­bined an­nual sales of about €15.3-bil­lion ($22.3-bil­lion). The new com­pany would be the world’s sec­ond-largest train com­pany af­ter China’s CRRC Corp.

In a pre­sen­ta­tion to an­a­lysts on their tie-up, Siemens-Al­stom said they ex­pect to gen­er­ate dou­ble-digit mar­gins by fis­cal 2020.

Bom­bardier was in the hunt to part­ner with Siemens as well and its pro­posal was un­der con­sid­er­a­tion by the Ger­man com­pany’s board un­til the end, high-level sources con­firmed. But the pol­i­tics of a Fran­coGer­man in­dus­trial cham­pion proved too dif­fi­cult to over­come as lead­ers from both coun­tries ar­tic­u­lated an am­bi­tion be­hind the scenes to cre­ate a pan-Euro­pean rail cham­pion. The French govern­ment, which con­trols 19.9 per cent of Al­stom, threw its weight be­hind the merger.

Bom­bardier has other po­ten­tial rail merger part­ners, in­clud­ing Stadler Rail of Switzer­land and Spain’s Grupo CAF, but they are not as big and could re­quire more leg­work. Join­ing forces with a Ja­panese man­u­fac­turer is also pos­si­ble.

Bom­bardier should look at all re­main­ing op­tions for its rail busi­ness, in­clud­ing part­ner­ing with sta­te­owned CRRC, Caisse de dépôt et place­ment du Québec CEO Michael Sabia said ear­lier this month. Mr. Sabia said Bom­bardier con­sid­ers the rail unit to be a core long-term as­set and would not sell it out­right. The Caisse bought a 30-per-cent stake in the busi­ness in 2015 for $1.5-bil­lion (U.S.).

Bruno Le Maire, France’s Fi­nance Min­is­ter, has sug­gested he would be open to Bom­bardier join­ing Siemens-Al­stom at a later date. But Mr. Sabia said that ar­range­ment would be tough to ex­e­cute. “A three-party dance is a com­pli­cated dance,” he told re­porters in Toronto on Nov. 1. “It’s hard not to step on peo­ple’s toes.”

Mr. Belle­mare’s com­ments came as Bom­bardier an­nounced it struck a deal to sell 12 C Series air­craft to African car­rier Egyp­tAir in a deal worth roughly $1.1-bil­lion be­fore dis­counts. It is the sec­ond C Series or­der clinched by Bom­bardier since its C Series part­ner­ship with Air­bus an­nounced Oct. 16.

Bom­bardier (BBD.B) Close: $3.11, up 5¢

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