Bombardier’s bat­tle

Cana­dian man­u­fac­turer scrables for turn­around amid poor per­for­mance, talks C Se­ries deals with Chi­nese car­ri­ers

Global Times - - Business -

Cana­dian plane and train man­u­fac­turer Bombardier Inc took big hits to prospects for growth in its core units this week, putting it un­der in­creased pres­sure to find new mar­kets for its jets and a po­ten­tial new train maker part­ner.

On Tues­day, the US De­part­ment of Com­merce slapped pre­lim­i­nary 219.63 per­cent anti-sub­sidy du­ties that would ef­fec­tively block Bombardier C Se­ries sin­gle-aisle jet sales in the US.

The du­ties were im­posed over a trade dis­pute be­tween Bombardier and its US ri­val Boe­ing Co.

Boe­ing has com­plained that the 110-to-130 seat air­craft that Bombardier had made were dumped be­low cost in the US mar­ket last year while ben­e­fit­ing from un­fair sub­si­dies.

The com­merce de­part­ment’s penalty against Bombardier will only take ef­fect if the US In­ter­na­tional Trade Com­mis­sion rules in Boe­ing’s fa­vor in a fi­nal de­ci­sion ex­pected in 2018.

“There’s a real ques­tion as to whether the Com­mis­sion will de­ter­mine a com­pany to be threat­ened with in­jury when it doesn’t pro­duce a di­rectly com­pet­ing project,” for­mer ITC chair­man Dan Pearson told Reuters by e-mail. “And the ac­tual de­liv­ery of air­craft... is at least a cou­ple years away.”

Mean­while, Ger­many’s Siemens AG opted to merge its rail busi­ness with France’s Al­stom SA in­stead of Bombardier’s Ber­lin-based rail unit, plac­ing the man­u­fac­turer in an even more dif­fi­cult fi­nan­cial sit­u­a­tion.

Fac­ing cap­i­tal pres­sures

With C$9 bil­lion ($7.22 bil­lion) in debt and fu­ture or­ders of its C Se­ries jet in the US pos­si­bly blocked, Bombardier may face pres­sure to raise money in or­der to com­pete with the newly cre­ated Euro­pean rail gi­ant, as some say.

“They [Bombardier] need fresh money,” said Maria Lee­nen, CEO of Ger­man rail con­sul­tancy SCI Verkehr. “They will have to de­fend their turf against the strong new player.”

The man­u­fac­turer’s rail unit Bombardier Trans­porta­tion (BT) may need a part­ner at some point to com­pete against the French-Ger­man gi­ant.

“Sud­denly, the chess board has changed, but Bombardier is not small,” said a source fa­mil­iar with the mat­ter. In ad­di­tion, BT can scoop up con­tracts in the near term while Siemens and Al­stom fo­cus on in­te­grat­ing their busi­nesses.

An­a­lysts and com­pany in­sid­ers per­ceive the po­ten­tial US du­ties on the man­u­fac­turer’s flag­ship jet pro­gram as a big­ger risk than the failed Euro­pean rail merger with Siemens.

Bombardier is in a stronger po­si­tion than it was in 2015, when it con­sid­ered bank­ruptcy af­ter the C Se­ries pro­gram fell be­hind sched­ule and sucked up cap­i­tal.

How­ever, cash in­fu­sions from the Que­bec govern­ment in the C Se­ries plane pro­duc­tion, and by Que­bec’s pen­sion fund in the rail busi­ness, helped it buy time to launch a turn­around pro­gram.

Nev­er­the­less, Bombardier is once again fac­ing se­vere un­cer­tain­ties, which will weigh on its share price. Its stock fell 14 per­cent Wed­nes­day.

“The trans­for­ma­tion plan re­quires the com­pany to con­tinue ramp­ing up pro­duc­tion and de­liv­er­ies of the C Se­ries,” said Ray­mond James’ trans­porta­tion an­a­lyst, Steve Hansen.

“In the short term, that’s not an is­sue, but I’d say over the medium term, it is an is­sue, and they will want to be able to sell to some US air­lines,” he con­tin­ued.

China’s gi­ant three to the res­cue?

With its US mar­ket in doubt for now, Bombardier is push­ing hard for its first C Se­ries sale in China, the world’s fastest-grow­ing avi­a­tion mar­ket, which may help keep its turn­around plan on track.

Marc Me­loche, Bombardier Com­mer­cial Air­craft’s head of struc­tured fi­nance, said on Tues­day that the com­pany aims to close deals with Chi­nese air­lines in the com­ing months and is cur­rently in talks with the coun­try’s three big­gest, Air China, China East­ern Air­lines and China South­ern Air­lines.

Sources said Cana­dian Prime Min­is­ter Justin Trudeau will soon visit China, where part of the C Se­ries fuse­lage is made, sug­gest­ing deals could be an­nounced shortly. Of­fi­cials fa­mil­iar with the visit say it is likely to take place in De­cem­ber.

Me­loche noted that China’s in­ter­est is high. “Bombardier is talk­ing to all three big Chi­nese air­lines, as well as many re­gional [play­ers] and start-ups. All are very in­ter­ested in the Bombardier C Se­ries,” he said.

Though the C Se­ries will likely face even more com­pe­ti­tion from some air­craft made by Brazil’s Em­braer SA, as well as the small­est planes made by Boe­ing and Air­bus, Me­loche as­sured that sev­eral Chi­nese lessors, many of which were look­ing for sale-and-lease­back op­por­tu­ni­ties, had al­ready is­sued term sheets in support of C Se­ries de­liv­er­ies.

New rules re­quir­ing Chi­nese air­line start-ups to op­er­ate at least 25 smaller-city hop­per jets be­fore grad­u­at­ing to big­ger air­craft have also fu­eled hopes of Chi­nese de­mand for C Se­ries jets.

While cur­rent C Se­ries mod­els ac­com­mo­date 110 to 130 seats, above China’s 100-seat limit for re­gional jets, Me­loche said Bombardier can make ad­just­ments to meet the re­quire­ments.

He also said Bombardier could ex­pand its ac­tiv­i­ties at China’s Shenyang Air­craft Cor­po­ra­tion, which al­ready makes part of the fuse­lage for its C Se­ries and Q Se­ries air­craft.

But un­like Boe­ing and Air­bus, which are ex­pand­ing pro­duc­tion fa­cil­i­ties in China, he said Bombardier had not yet dis­cussed the pos­si­bil­ity of es­tab­lish­ing a separate air­craft plant in the coun­try.

Mem­bers of the Swiss aer­o­batic team Pa­trouille Suisse fly in for­ma­tion with a Swiss Bombardier C Se­ries air­craft.

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