By Frederick K. Larkin | February 18, 2020 Estimated reading time 4 minutes, 2 seconds.
Bombardier Inc. of Montreal, Que., has signed a memorandum of understanding (MOU) with Alstom SA of Paris, France and the Caisse de depot et placement du Quebec (CDPQ) of Montreal for the sale of Bombardier Transportation GmbH (BT) of Berlin, Germany to Alstom. BT is currently owned 67.5 per cent by Bombardier and 32.5 per cent by CDPQ. Bombardier intends to use the US$4.2-4.5 billion of net proceeds from sale to pay down debt.
The terms of the acquisition will have to be approved by regulatory and anti-trust authorities of numerous jurisdictions. As well, it will be subject to the approvals of both Alstom’s and Bombardier’s shareholders. Given the time that will be required, the deal is expected to close during the first half of 2021.
This latest divestiture follows recent moves by Bombardier to sell its CL-415 water bomber program, its Q400 turboprop airliner business, its CRJ family of regional jets, its aerostructures manufacturing operations and its remaining stake in the Airbus A220 jet airliner family.
Once this transaction has been completed, Bombardier will be active in only one business – the design and production of business jet aircraft. For investors looking for a pure play in the bizjet industry, Bombardier will be a situation that they may want to investigate.
The other key producers of corporate jets (Cessna, Dassault, Embraer and Gulfstream) are either owned by diversified industrial conglomerates or by airframe manufacturers that also produce aircraft that serve distinctly different commercial and military markets.
While the deal looks to help Bombardier in its quest to alleviate its current debt problem, James Koutsoukis, vice-president and senior analyst of Moody’s, an American credit rating service doesn’t think the solution will be so simple for the Canadian OEM.
“Though Bombardier’s announced sale of Transportation to Alstom will provide it the ability to tackle its significant debt load, the transaction has a number of hurdles ahead of it. The most significant being its ability to receive clearance from relevant regulatory and anti-trust authorities. If completed, we view the remaining business jet business as having higher credit risk which will weigh against possible improvements in financial metrics,” said Koutsoukis.
In the meantime, Bombardier Aviation continues to market its six corporate jet models that serve numerous size categories within the business aviation industry. The models range in price from the compact Learjet 75 Liberty (approx. US$10 million) to the ultra long-range Global 7500 (approx. US$73 million).
While the Learjet operations are in Wichita, Kan., the Challengers are produced at Dorval, Que., and the three members of the Global family are assembled in Toronto, Ont. Just over two months ago, Bombardier announced that it will be transferring its Global operations from Downsview Airport in Toronto to Toronto Pearson International Airport in Mississauga. The new one million square foot facility will employ thousands of highly skilled individuals and will utilize a leading edge technology-based manufacturing process to build the aircraft.
With a pro-forma top line of approximately US$7 billion and a US$14.4 billion order backlog, Bombardier Aviation is expecting to deliver at least 160 aircraft during 2020. It should be an interesting story to keep an eye on.
