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Swedish prosecutors in June charged Thomas Bimer, a former Bombardier manager, with aggravated bribery in connection with a lucrative rail contract Bombardier won in Azerbaijan in 2013.Paul Chiasson/The Canadian Press

Bombardier Inc. has lost a quarter of its market value over the past eight weeks, a possible sign that investors are fretting over the potential impact of a Swedish corruption probe on the Canadian plane maker’s balance sheet.

The 25-per-cent drop between late October and Friday’s close happened after a multimonth resurrection that saw Bombardier push up from penny stock status after more than a year in the doldrums. Some investors are surely taking profits from the gain, but analysts say others might be selling because of mounting concern about the company’s financial liabilities.

Among them: an indemnity to French train maker Alstom SA, tied to the Swedish corruption case. The indemnity, negotiated as part of Alstom’s takeover of Bombardier’s train business in January, is secured by a €250-million bank guarantee (about $360-million at current exchange rates). Bombardier agreed to compensate Alstom “for certain known compliance-related matters as well as for compliance-related violation or alleged violation” of applicable laws, according to Bombardier filings.

“Although its shares are no stranger to volatility, the company has a history of unanticipated problems popping up to derail an otherwise positive outlook,” said Dan Fong, an analyst with Veritas Investment Research in Toronto. “The recent drawdown has left us wondering if this might be a signal of history repeating.”

Swedish prosecutors in June charged Thomas Bimer, a former Bombardier manager, with aggravated bribery in connection with a lucrative rail contract Bombardier won in Azerbaijan in 2013. Sweden’s National Anti-Corruption Unit said as much as $130-million was paid as a bribe to ensure that a Bombardier-led consortium won the contract.

Neither Bombardier nor any of its subsidiaries has been charged.

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While the case proceeds, Bombardier chief executive Éric Martel is trying to stage a recovery for the Montreal-based industrial giant. His plan hinges on a slimmed-down business model focused solely on selling and servicing private aircraft. The effort is yielding early results, and Bombardier is riding an unforeseen surge in private air travel as the pandemic boosts orders for its luxury jets.

One worry among investors appears to be that Bombardier is on the hook for several hefty contingent liabilities, including potential damages from the Swedish case, Mr. Fong said. The concern is that these liabilities could represent a significant draw on cash and imperil the company’s turnaround.

Mr. Fong’s conclusion, published in a Nov. 19 note after he reviewed Bombardier’s accounting disclosures: The liabilities are manageable and do not represent a significant risk to the company’s comeback. He is maintaining his “buy” rating on the shares, with an intrinsic value estimate of $2.85 per share.

A judge is expected to deliver a verdict in the Swedish case this coming Wednesday. If convicted, Mr. Bimer, who was vice-president of Bombardier’s Stockholm-headquartered rail-control solutions division when the Azerbaijan contract was awarded in 2013, could face up to six years in prison.

Bombardier spokesperson Anna Cristofaro said Bombardier has found no evidence that suggests a corrupt payment was made or offered to a public official.

Mr. Fong said he believes the plane maker’s exposure is manageable for several reasons. First, Alstom agreed to the €250-million indemnity, likely on the basis of its own due diligence, suggesting the amount covers most if not all potential liabilities.

Second, the total value of the contract at the centre of the Swedish case is about US$330-million, of which Bombardier’s share was US$200-million. Even if the contract was nullified, the upper limit on the company’s exposure might only be in the range of US$200-million to US$300-million, Mr. Fong said.

Finally, timing is probably on Bombardier’s side, the analyst said. “Even if the contract in question came under increased scrutiny, the process to reject it is likely to be lengthy and subject to appeals. Remuneration for damages may not materialize until Bombardier’s turnaround is well underway.”

These aren’t the only financial liabilities on Bombardier’s balance sheet. The company also has $876-million in refundable government advances tied to the sale of its C Series airliner (now A220) program and another $330-million in liabilities tied to the sale of its CRJ regional jet franchise. But these are offset by receivables and other assets and they’re unlikely to translate into material cash outflows, Mr. Fong said.

There are other possible explanations for the pressure on Bombardier’s stock. Investors could be anticipating supply chain problems for the manufacturer, even as Bombardier insists the situation is under control. And there’s a possibility the company could tap the markets to raise money through a share sale.

Asked what he thought was behind Bombardier’s recent share price decline, Mr. Martel told reporters earlier this month that “it’s normal there’s a correction at a certain point” after big gains. Nothing has changed since the company reported third quarter earnings on Oct. 28, but there are wider market forces playing out, he said.

“There is more worry about the coronavirus,” Mr. Martel said. “There are all kinds of global issues. And when you look at the markets, all aerospace companies have dropped a bit over the last month or two months. So it’s not necessarily directed at Bombardier.”

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