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FILE PHOTO: A Bombardier advertising board is pictured in front of a SBB CFF Swiss railway train at the station in Bern, Switzerland, October 24, 2019. REUTERS/Denis BalibouseDENIS BALIBOUSE/Reuters

Bombardier Inc. is closing in on a deal for its rail business from French industrial giant Alstom SA as it struggles to turn around its fortunes.

The Canadian plane and train maker is trying to pare its heavy debt load and is looking at drastic options to generate cash, including unloading one of its two main business units, sources have told The Globe and Mail. The sources are not being identified because they were not authorized to speak to media on these issues.

Several European media outlets reported on a pending deal. Germany’s Handelsblatt newspaper reported that a deal with Alstom has been struck at €7-billion ($10-billion) and will be announced Thursday. France’s BFM business channel said Alstom was ready to make a firm offer for the Bombardier division. Bombardier will release fourth-quarter results Thursday morning.

Regulatory approval is a big hurdle for any train deal. Last year, European regulators blocked the planned merger of Europe’s two largest train manufacturers, Alstom and Germany’s Seimens AG, over competition fears.

Quebec Premier François Legault characterized the talks as centred on Bombardier’s train business, as well as its joint venture with Airbus SE and Quebec to make the Airbus A220 jet, formerly the C Series. The Montreal-based transportation giant employs 12,600 people in the province.

“There are different scenarios being examined,” Mr. Legault told reporters Wednesday in Quebec City.

Bombardier chief executive officer Alain Bellemare is struggling to turn around the Montreal-based company, which nearly collapsed under the weight of US$6-billion in costs to develop its C Series airliner and is now being hurt by problems finishing several major train contracts. The company was handed a US$1-billion lifeline by Quebec in 2015 and its funds were further bolstered by a $1.5-billion investment in BT by pension fund Caisse de dépôt et placement du Québec.

The Caisse holds a roughly 30-per-cent stake in Berlin-based BT and has been encouraging Bombardier for years to explore its options for the unit, insisting the business would be strengthened by combining its operations with another manufacturer. Bombardier made a proposal to merge BT with Germany’s Siemens AG in the fall of 2017 but was rebuffed.

All three major European rail groups have been circling each other in recent years. Analysts have said consolidation is necessary to better face the rise of Chinese state-backed rival CRRC.

Bombardier revived its efforts to find a path for BT last year and opened its books to Alstom for due diligence after finding its non-binding preliminary offer of US$7-billion attractive, the French business channel said.

Bombardier is running simultaneous sets of talks in Europe and North America on selling either its rail or luxury-jet unit, according to information gathered by The Globe and Mail. Discussions have been held with Alstom and Japan’s Hitachi on the train side and U.S. conglomerate Textron Inc. and private equity giant Carlyle Group on the plane side, sources confirmed.

In January, Mr. Bellemare said the company had completed a strategic review of options aimed at paying down its more than US$9-billion in debt. At the time, the company said it would update shareholders on its plans when it releases its fourth-quarter financial results.

After years of borrowing to develop the C Series and other products and because of penalties and other problems delivering trains, Bombardier is still not generating positive cash flow. The company warned last month that it will fall US$700-million short of its targeted cash generation for 2019.

Mr. Bellemare has already sold off assets that his leadership team considers not central to Bombardier’s growth prospects, including its waterbomber business, its Q400 turboprop unit, and the CRJ regional jet franchise that made the company’s name in global commercial aviation.

In 2018, Bombardier handed control of its C Series program to Airbus for nothing, freeing itself from the responsibility of selling and building the planes. Bombardier remains a minority partner with a 34-per-cent stake, earning a portion of revenue from sales. Quebec also has a roughly 16-per-cent interest.

Now, however, Bombardier’s CEO is having to go even further to ensure the company can stabilize and survive in the long term.

That means potentially cutting ties to the C Series as a first step. Under the joint-venture deal, Bombardier was already on the hook for more than US$350-million in costs on the A220 project over the next two years. Now the financial plan for the project has been updated and the partners are being asked to put more money into the venture.

Bombardier has already said it is evaluating its participation in the partnership. It is widely expected to pull out.

Alstom’s initial, non-binding offer of US$7-billion reported by French media is likely on the high side given BT’s recent operating challenges and a formal bid could come in at a much lower price, according to Desjardins Capital Markets analyst Benoit Poirier. Mr. Poirier has pinned a value of about $5-billion on BT, not including pension liabilities.

If Bombardier sells to Alstom, it would become solely a manufacturer of luxury private jets. Bombardier is controlled by its founding Beaudoin-Bombardier family through a special class of multivoting shares.

Alstom and Bombardier declined to comment.

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