00:11 - (05:11 UTC) - February 6, 2020 - by Sylvain Faust for fliegerfaust.com
(version en Français ici)
Just after being cleared to land very close to me, an unexpected little bird switched to ground frequency and started entertaining me on what might, should or could happen, at Bombardier, in the coming days. He delivered his goods recto tono and rather quickly, like a robot reading a high-speed checklist, if you will, but, happily, I could grasp most of it.
So, here are the key points:
- Bombardier might be about to pull out completely from its BT (Bombardier Transportation) business.
- Bombardier should sell its share in the A220 project, including the Aerospace component producing parts for the A220 (cockpit, bulkhead…). As we know, the production of the wing is done in UK and has already been sold to Spirit Aerosystems just a few weeks ago.
- Bombardier will yet keep the lucrative business jet division as its main business backbone.
Bombardier Transportation (BT)
Bombardier would be about to announce that it is selling its portion (70%, or so) of ownership into BT (as we know, the remainder of the BT asset is owned by the "Caisse de dépôt et placement du Québec"). It would be judicious to estimate the value of BT to be close to US$7 billion. Hence, the amount Bombardier would receive should be 70%, or close to US$4.9 billion, minus some liabilities.
The footprint of BT in Canada remains very small when compared with its installations and factories elsewhere in the world. BT's headquarters are already located in Berlin, Germany, in case you didn't know. Thus, letting BT go would have a minimal impact on Quebec, or anywhere else in Canada.
A220 / CSeries Partnership
In line with this scenario, Airbus would be acquiring all of the shares (ownership) Bombardier detains into the A220 program, plus all of the associated groups producing parts for that aircraft.
As you might already know, Bombardier is also a "supplier" to the A220. Bombardier produces the wing, the cockpit, pressure bulkhead… As for the wing production, the division producing the A220 wing (and some fuselage) has already been sold by Bombardier to Spirit Aerosystems few weeks ago and always been located in Belfast
The A220 cockpit and pressure bulkhead assemblies are produced in Montreal in the Ville St-Laurent facility. Could the actual St-Laurent works then be part of the transaction? Not for the physical facility as such, but as far as the the work proper is concerned, the answer is a definitive yes:
Airbus could just lease the space, since it would then be producing the cockpit themselves. For Bombardier it remains clear that this location/site is under a higher scrutiny as to its future vocation or ownership.
A question remains: at what price the A220 program should then be valued to calculate the amount Airbus would be paying Bombardier for its A220 shares and associated parts production group? This is where Quebec government is much implicated. Why? Well, it's just because that transaction would "set a value" not only to Bombardier's part but also to the portion owned by the Quebec government.
Some fuzzy formula could be involved in transferring value out of the cockpit production etc. into the value of the A220 program so as to get a higher "assessment" for the A220 partnership value. At this point, it is to be remembered Quebec invested $US1 billion and currently owns about 17% of the A220. For the government to be able to say that Quebec lost nothing in the exercise, the A220 program would have to be valued at US$5.9 billion (17% would represent $US1 billion). I do not expect Airbus to buy back Bombardier's portion of the program based on that US$5.9 A220 valuation.
By the way, if the Quebec government says their portion of the A220 ownership program is valued at $US1 billion, it would still mean a loss for Quebec taxpayers, when taking account the present and ever running monthly interest cost of borrowing that US$ 1 billion.
At this stage of the game, Bombardier is certainly not interested in selling this jewel.
In fact, the division is close to produce very healthy profit margins. This group just started the delivery in 2019 of its newest best in class large luxury business jet, the Global 7500, competing only with Gulfstream on the rarefied high-end market. Furthermore, the division has a strong order book.
Bombardier has about 15 000 employees related to its aerospace business and probably a little less associated to the Business Jet division in Canada, about 12 000 in Quebec. Thus, selling the division would have a much larger impact to Canada, the Montreal aerospace sector, suppliers, related businesses, a domain generating higher paying jobs, impacting around 22 000 jobs.
But, as it is already acknowledged, this division remains confronted to a few challenges. The renewal of its Challenger model and its low selling Learjet model are two of them (more on this on my next article soonEnter your email here to get it free as soon as it is available).
The Global aircraft (multiple models here) are all assembled in Toronto then ferried to Montreal for its high-class interior completion. The Challenger is all built in Montreal. The Learjet is produced at Bombardier facility in Wichita, Kansas.
As for the visit of Textron at Bombardier in Montreal…. More in the next article. (Enter your email here to get it free as soon as it is available).
Now what? Then what?
This is not a new storyline at any rate, if you ask me. I did suggest letting go BT four years or so ago, covering the large company debt with its sale. But, what does it mean? It means that Bombardier Inc. would become a profitable smaller company with a much smaller debt, the current US$ 9 billion debt mainly paid by selling BT and some other much smaller assets
Then, Bombardier would be able to increase its average income per employee to levels more in line with the industry, to "focus" on future businesses having a strong footing, to exercise "vision".
Could the "Bombardier/Beaudoin Family" controlling over 50% of the vote decide to delist the company? Could a healthy Bombardier Inc. then be merged with BRP where the family could end with again over 50% of the vote? (In BRP they do not have the majority of the vote, unlike in Bombardier Inc.)
Let's see… by February 13, 2020...
Sylvain Faust, for Fliegerfaust
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