Quebec government to put US$1bn in new Bombardier CSeries partnership

After announcing earlier this month that talks with Airbus to take a controlling stake in the Bombardier CSeries had failed, the Canadian aircraft manufacturer has announced that the Quebec government intends to inject US$1bn into a new partnership involving a subsidiary of Bombardier, aimed at seeing the new C Series through certification and into full production. The Quebec government will take a 49.5% stake in a new subsidiary. The investment has been approved by the Quebec cabinet, though it still requires regulatory approval which Bombardier expects to receive by January 1st 2016.
The move was unveiled at the company’s third-quarter financials’ announcement, which also included notice of a US$3.2 bn write-down on development costs in an attempt to accelerate returns from sales of the narrow-body aircraft. According to Alain Bullemare, CEO of Bombardier, the agreement with Quebec “is a key milestone to ensuring the program’s success. With this investment we are more confident in our capacity to bring production to fruition. Together we will launch the CSeries to commercial success.”
Certification timing of the 110-seat CS100 remains unchanged and is expected by the end of the year, while entry into service should take place in the first half of 2016. The CS300 130-seater will follow a similar path and enter into service six months later. The Company expects the subsidiary to deliver between 15-20 aircraft in 2016, ramping production up to full rate by 2020. All CSeries assets, liabilities and obligations will be transferred to the new company and while the Quebec government will share in any profits and losses, any further investment will come from Bombardier according to John di Bert, the Company’s CFO.
Now that the higher development costs caused by schedule delays have been written off, returns on the CSeries should speed up, as confirmed by Di Bert: “We expect to see strong returns on future cashflow now we have sized the book value to the appropriate amount.” Currently Bombardier will concentrate on operating performance, according to Bellemare, with the optimization of the CSeries assembly, while also reducing manufacturing and supply-chain costs. Bellemare also confirmed that there had been “tremendous interest” in the aircraft and that “We have had very good discussions,” adding: “We are regaining the confidence of our existing and potential future customers.” Bellemare would not be drawn into revealing what happened regarding earlier abortive discussions with Airbus.