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February 1, 2018 - Quebec, Montreal, Sylvain Faust

A quote from a Bombardier family I find interesting:

" The key is keeping control of the company and passing it on to the next generation while making sure that shareholder value is generated along the way," 43-year-old Charles Bombardier told Reuters last month." reference 1

Read also: Bombardier? "It's a story of corporate arrogance, greed and mismanagement by a family company that has multiple voting shares and doesn't have to answer to an independent board or to the common shareholders"

With almost CDN$8 billion spent on the CSeries program and another US$700 million asked by Airbus on top of the 50% given for free, Bombardier will be left with about a 32% ownership of the CSeries.

Alain Bellemare (4th L), president & chief executive officer of Bombardier Inc., Airbus Chief Executive Tom Enders (4th R) and Quebec premier Philippe Couilard (3rd R) give a thumbs up with other dignitaries and executives in front of a Bombardier C Series plane at Bombardier's plant in Mirab

CSeries market is about 5500 aircraft ( reference 2). Assuming that Airbus is able to grab 60% of the market (which is high), this would mean about 3300 CSeries for the life duration of the program.

Before being profitable, remember, the program has to bring back to Bombardier Inc. shareholders almost 8$ billion in profit to recover the money spent. To be nice, I'll use $7 billion instead...

How much profit each aircraft delivery should bring just to pay back the expenses? At cost. And I'm not computing the cost of borrowing $7 billion which as you know makes this still more expensive than $7 billion (need to add the interest cost).

But once more, I'll be nice, instead of using the "almost $8 billion) or that $7 billion + interest cos, I'll use $6 billion for the calculation, yes, I'm too nice. Keep reading...

So, basically, 6 billion divided by 3300 aircraft; 7,000,000,000 / 3300 = 2121212.12

$2.12 millions in profit per aircraft delivered would be required during the entire life of the project to recover the money spend by Bombardier Inc. ? No, it's more!

First, Bombardier Inc. will no longer owns 100% of the program after the transaction with Airbus is signed and completed. Second, no CSeries delivered so far has made any profit, in fact, it just added to the amount spent (lost), the CSeries Holding is not producing a profit yet. With 32% ownership after the Airbus deal the average profit per aircraft will need to be of $6.63 million so Bombardier gets $2.12 million with $3.32 million going to Airbus (do you expect Airbus to spend $7 billion on the CSeries too?)

With a list price around US$80 million (CDN$99 million at an exchange rate of 1.24), it would be normal to "assume" a minimum of 5% to 10% profit, i.e $4.95 to $9.9 million... but the list price is never what airlines get their final offer at. With Delta for example it was more about US$20 million per aircraft (CDN$24.8 million). Still, at US$30 million per CSeries (CDN$37.2 million), to recover CDN$5.7 million in profit would mean profit margins of 15.3%. This leads to the question, how much do you think building a CSeries actually cost?

I'm using a very high number of CSeries sold, 3300 aircraft. If Laurent and Pierre Beaudoin would have managed to keep the program cost below $4 billion it would have been different. But that's not what did happen.

Do you think Bombardier Inc. shareholders will recover all their money spent into the CSeries program?

Do you think the Quebec Government will recover all its $1.3 billion invested in the CSeries?

Quebec ownership will end up below 18% with still ongoing dilution in the CSeries Holding with Bombardier Inc. injecting more money to cover for the ongoing lost while being paid in new shares of the CSeries Holding.

If Bombardier's numbers are so better than mine, why is the Bombardier/Beaudoin family not just not offering to buy back now the Quebec Government portion at $1.3 billion? You get the point, because it's no longer worth it.

Bombardier inc. currently has $11.1 billion in long term debt.

Interesting to read:

• Bombardier and Quebec Government To Keep Paying Airbus to Take 50.01% of the CSeries and Its Control

• Bombardier family mulls new blood on board: founder's grandson (Reference 1)

• No more business as usual at Bombardier

• Bombardier Inc will lose US$32M for each CSeries built in 2016-17: analysis

• L'incroyable cadeau à Airbus

• L'inacceptable bévue avec Bombardier

Reference 2: Airinsight https://www.airinsight.com/re-examining-potential-...
"Our outlook for the 100-149 seat market as a whole remains a bit lower than Bombardier's forecast, as we project 5,000 to 5,500 aircraft in this sector over the next 20 years. However, with the partnership with Airbus, we anticipate the CSeries market share will increase from around 40% of this market to 55-60% of this market, as the aircraft is simply better than any competing model, and now has the corporate strength behind it to ensure its success. This should result in sales of between 2,750 and 3,360 aircraft, a substantial increase over our prior forecast, with our new expected forecast midpoint of 3,010 aircraft."

Sylvain Faust, Fliegerfaust