Bombardier likely to need government help as factories shut for COVID-19, analyst says

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Bombardier Inc. could be forced to seek another government bailout to survive as the economic crisis caused by the novel coronavirus pandemic pummels Canada’s industrial base, an analyst said.

The fallout from COVID-19 threatens Bombardier’s already tenuous liquidity position and possibly its planned asset sales, Cowen & Co. analyst Cai von Rumohr said in a research note published Monday. He said the company may not be able to recover without government help.

“We see Canadian/Quebec governments as likely to offer support if Bombardier gets close to the edge,” Mr. von Rumohr said. “However, their interest will be to save jobs, not Bombardier shareholders.”

The comments highlight the depth of the trouble from COVID-19 for Canada’s big industrial companies, particularly those that had fragile balance sheets before the public-health crisis. If Bombardier makes a request, it would be the second time in five years the company has asked for financial help.

Montreal-based Bombardier is controlled by its founding Bombardier-Beaudoin family, which is seeing its wealth evaporate in the current market rout. In addition to the family’s Bombardier stock, which has tumbled to less than 50 cents a share, its stake in Ski-Doo maker BRP Inc. has plummeted amid a share-price decline of 72 per cent over the past month.

Quebec handed Bombardier a US$1-billion lifeline in 2015 to help the company finish the development of its C Series airliner, whose massive costs had pushed the manufacturer to the brink of collapse. The Canadian government was asked to match the funds but declined, offering instead $372.5-million in loans.

Bombardier faces challenges on several fronts as it tries to recast itself as a pure-play maker of private luxury jets. Most immediately, the company’s operations have been hit by the COVID-19 outbreak. An employee at Bombardier’s global business-jet interior components plant on Montreal’s West Island tested positive for the virus and the company has closed the facility temporarily for cleaning.

On Monday, Quebec and Ontario ordered all non-essential businesses to close for at least two weeks, which means all of Bombardier’s output in Canada will likely be halted.

The company has also suspended production at two rail equipment plants in Crespin, France, and Bruges, Belgium. France has ordered that people maintain a minimum distance between each other.

Bombardier’s cash could dwindle fast in the months ahead if demand for its private business jets falls on the prospect of a global recession. Many business leaders could turn to private jets to avoid flying with other passengers on commercial airlines, but that won’t be enough to compensate for orders that will be delayed or cancelled because of a broader economic contraction, Mr. von Rumohr said.

Asset sales could help bring in liquidity for Bombardier, but those are now uncertain. Mr. von Rumohr estimates that by September, Bombardier could have just US$1.3-billion in cash while it has US$1.5-billion of debt maturing next year.

Bombardier is trying to finalize three asset sales in order to raise cash and pay down debt: a US$500-million divesture of its airframe components business to Wichita, Kan.-based Spirit AeroSystems Inc., the US$550-million divestiture of its CRJ regional jet franchise to Mitsubishi, and the €7.5-billion (roughly US$8-billion) deal to sell its rail unit to France’s Alstom SA.

The Spirit and Mitsubishi deals were slated to be completed by the end of June, but are now thought to be in jeopardy. The Alstom deal could also be at risk by COVID-19 if the French company cools on the takeover to preserve cash.

“The coronavirus-led economic slowdown puts Bombardier’s critical de-leveraging strategy at a greater risk,” BMO Nesbitt Burns analyst Fadi Chamoun said. “The ongoing market uncertainty creates concern over whether these asset sale transactions can be consummated.”

Quebec considers aerospace a strategic industry for its economy and Bombardier remains at its centre. Pierre Fitzgibbon, the province’s Economy Minister, told reporters last week that the government will be “more aggressive” in helping such strategic sectors through the crisis.

Bombardier spokeswoman Jessica McDonald declined to comment directly on any potential aid request. “This situation worldwide remains very fluid and Bombardier, like every other company, is continuing to evaluate the potential impact of COVID-19 to our businesses, to take the best measures to ensure the health and safety of our employees, and to protect our business for the long term once the situation recovers,” she said.