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The compensation includes a nearly US$3.5-million payment to former CEO Alain Bellemare, seen here on May 2, 2019, linked to the sale of the company’s transportation division to French giant Alstom SA.Graham Hughes/The Canadian Press

Bombardier Inc. paid former CEO Alain Bellemare a severance package of US$12.35-million when he was terminated in March, and has promised future special payments to other top executives when a deal to sell the company’s train division closes in 2021.

The compensation, disclosed in the company’s proxy circular to shareholders filed Friday afternoon, includes a nearly US$3.5-million payment to Mr. Bellemare linked to the sale of the company’s transportation division to French giant Alstom SA, which is scheduled to close in June, 2021. It also includes almost US$7-million in cash – equal to two years of salary and bonus – and early access to cash out stock options and share awards the company values at just less than US$2-million.

The package reflects special compensation arrangements Bombardier has struck with multiple executives, rewarding them for the agreed-upon sale of Bombardier Transportation to Alstom for net proceeds of US$6.4-billion. The deal, which will see Bombardier exit the manufacture of rail cars and focus on business aircraft, was widely seen as key to the cash-strapped company’s survival.

Bombardier says in its circular that in February its board approved “a one-time, special cash incentive compensation to a broad group of key employees at various levels of the organization” if the company can close a major transaction such as the Alstom sale.

The company’s top executives, Bombardier says, will get that “special transaction payment” equal to a year’s pay, plus their bonus targets. That would make the payments equal to about US$1.2-million for each of chief financial officer John Di Bert, aviation division president David Coleal and general counsel Steeve Robitaille, and nearly US$1.5-million for transportation president Danny Di Perna. Mr. Bellemare’s US$3.5-million special severance payment was designed to replace what he would have received as a transaction bonus.

The company says the board decided to approve the payments “to ensure that Bombardier’s ability to maintain its business and achieve an optimal outcome for its stakeholders would not be negatively affected by the loss of key personnel at various levels of the organization … and that relevant key personnel would be rewarded for their special contribution in the context of the transaction and compensated as appropriate for the additional efforts imposed by the process.” To get the payment, the executive must still be employed by Bombardier when the deal closes.

In addition, the board approved potential severance payments for the top executives similar in design to Mr. Bellemare’s, if they were to depart the company. They include two years’ salary and bonus, and early access to stock options and share awards they’d otherwise forfeit by leaving. The company estimates their value at nearly US$12-million in total for the four men, based on Bombardier’s May 6 closing price of 53 cents a share. The stock closed at 41 cents on Friday.

Bombardier says the board approved the severance plans on the recommendation of its human resources and compensation committee “after extensive consultation with an independent external compensation consultant and external legal counsel.”

One of the considerations, Bombardier says, was to have key executives motivated to successfully complete a transaction. They’re more likely to, Bombardier says, if “the uncertainties, risks and potentially disturbing circumstances regarding their own employment and/or employment duties are minimized.”

Bombardier shares have plummeted this year as COVID-19 has disrupted the broad economy and the airline industry in general. The company said on May 7 that it had negative free cash flow of US$1.6-billion in the first quarter, nearly twice the shortfall analysts were expecting, with the extra amount nearly all because of the pandemic.

That level of “cash burn” will repeat in the second quarter, executives said, but they expect the second half of the year would be break-even or positive on cash flow. Bombardier defines free cash flow as the money it generates from its operations minus the amount it spends on capital goods and other long-term assets it uses for its business.

In the first quarter, Bombardier negotiated a new investment of US$386-million in its train-car manufacturing division from provincial pension fund Caisse de dépôt et placement du Québec. New CEO Éric Martel said this provided "additional flexibility as we managed through the crisis.”

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