Bom­bardier eyes op­tions af­ter blows to rail­way, aero­nau­ti­cal units

Com­pany un­der pres­sure to find new mar­kets for jets and a new train maker part­ner

The Gulf Today - Business - - 6viewpoint -

MON­TREAL: Cana­dian plane and train man­u­fac­turer Bom­bardier 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 im­posed pre­lim­i­nary anti-sub­sidy du­ties that would ef­fec­tively block Bom­bardier jet sales in a key mar­ket if up­held.

Ger­many’s Siemens opted to merge its rail busi­ness with France’s Al­stom in­stead of Bom­bardier’s Ber­lin-based rail unit. How­ever, the Cana­dian plane and train maker is still pur­su­ing talks on jet sales to China, po­ten­tial Euro­pean jet or­ders, and a $33 bil­lion train or­der back­log which may help keep its turn­around plan on track.

With C$9 bil­lion in debt and fu­ture or­ders of its Cseries jet in the United States pos­si­bly blocked, some say Bom­bardier may face pres­sure to raise money to com­pete on its own against a newly-cre­ated Euro­pean rail gi­ant.

“They (Bom­bardier) need fresh money,” said Maria Lee­nen, chief ex­ec­u­tive of Ger­man rail con­sul­tancy SCI Verkehr. “They will have to de­fend that (their turf) against the strong new player.”

An­a­lysts and com­pany in­sid­ers see the po­ten­tial US du­ties on its flag­ship jet pro­gram as a big­ger risk than the failed Euro­pean rail merger.

Bom­bardier is in a stronger po­si­tion than it was in 2015, when it con­sid­ered bankruptcy af­ter the Cseries pro­gramme fell be­hind sched­ule and sucked up cap­i­tal. Cash in­fu­sions from the Que­bec gov­ern­ment in the Cseries plane pro­duc­tion, and by Que­bec’s pen­sion fund in the rail busi­ness, helped it buy time to launch a turn­around pro­gram.

But Bom­bardier is once again fac­ing un­cer­tainty that will weigh on its share price. The stock fell 14 per cent be­fore re­cov­er­ing to close down 7.49 per cent at C$2.10.

CSERIES AICRAFT

“The trans­for­ma­tion plan re­quires that the com­pany con­tinue to ramp pro­duc­tion and de­liv­er­ies of the Cseries,” 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 of these US air­lines.”

With the US mar­ket in doubt for now, Bom­bardier is push­ing hard for its first Cseries sale in China. A se­nior Bom­bardier ex­ec­u­tive told Reuters on Tues­day that it aims to close deals with Chi­nese air­lines in com­ing months.

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

“There’s an ex­cess of 56 car­ri­ers in China but five to six are re­ally big,” said Robert Mcwhirter, pres­i­dent and port­fo­lio man­ager at Se­lec­tive As­set Man­age­ment in Toronto. “If they stan­dard­ize on some of the Bom­bardier air­frames, then most of the prob­lems are solved.”

Mean­while, rail unit Bom­bardier Trans­porta­tion (BT) may need a part­ner at some point to com­pete against the new Euro­pean gi­ant cre­ated by the deal be­tween Siemens and Al­stom and China’s merged rail be­he­moth, CRRC Corp Ltd. 601766.SS. For now, it has the heft to stand alone, an­a­lysts and com­pany in­sid­ers say.

“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.

Trade ex­perts are not con­vinced that Boe­ing’s Cseries trade com­plaint will be up­held in 2018 by an in­de­pen­dent US trade body cur­rently com­posed of four com­mis­sion­ers from both Amer­i­can po­lit­i­cal par­ties.

The In­ter­na­tional Trade Com­mis­sion (ITC) will de­cide whether the Cseries, which was sold to Delta Air Lines, and are to be de­liv­ered in 2018, harmed Boe­ing, which did not com­pete for the or­der with one of its planes.

“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 said by email. “And the ac­tual de­liv­ery of air­craft is at least a cou­ple years away.”

The best hope for shield­ing Bom­bardier and its Cseries jet­liner cus­tomers from mas­sive trade du­ties im­posed by the Trump ad­min­is­tra­tion is a lit­tle-known com­mis­sion tucked away next to an ex­press­way in South­west Wash­ing­ton. The US In­ter­na­tional Trade Com­mis­sion could ef­fec­tively throw out the Com­merce De­part­ment’s anti-sub­sidy du­ties against Bom­bardier if it finds that Boe­ing did not suf­fer the in­juries it has al­leged.

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