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Analysts see three leading contenders for Bombardier’s train-making business: France’s Alstom, industry leader Siemens AG of Germany and Japan’s Hitachi Ltd.

DENIS BALIBOUSE/Reuters

Does Bombardier Inc. chief executive officer Alain Bellemare prefer trains or planes?

The former engineer and boss of the Montreal-based aerospace and transport company revealed earlier this month that he is “actively pursuing options to strengthen Bombardier’s balance sheet and enhance shareholder value.” Bankers expect that, with US$9-billion of debt to pay down, Mr. Bellemare will in the next six months sell either the division that makes corporate jets under the Learjet, Challenger and Global brands, or the unit that makes trains and subway cars.

Here’s the catch: Analysts agree that while the transport division would be easier to flog – Bombardier is already reported to be negotiating a deal with rival train-maker Alstom SA – selling the aviation business would be the better long-term decision, as it would allow Mr. Bellemare to exit a cyclical industry that may be near its peak.

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“Investors have long-standing concerns about business jet oversupply and the need for big investment in new platforms,” J.P. Morgan Securities LLC analyst Seth Seifman said in a recent report. He said the sector will consolidate around its largest players, and is one of several analysts highlighting Textron Inc. as the logical buyer of Bombardier’s aviation division. Rhode Island-based Textron already makes Beechcraft, Cessna and Hawker aircraft, and acquiring the Bombardier unit would make it the market leader. Brazil’s Embraer SA and private equity funds would also take a look.

If the only factor in Mr. Bellemare’s decision was paying down debt, this would be a simple choice: Bombardier’s CEO would likely cut ties with business jets. The division could fetch between US$8.5-billion and US$10.5-billion, according to a report published on Tuesday by analyst Konark Gupta at Scotia Capital Inc., more than enough money to fix the balance sheet.

TRAINS OR PLANES?

Bombardier is considering a sale of its aviation or transportation divisions. Here’s what they are estimated to be worth and some potential buyers

BOMBARDIER TRANSPORT

Products:

 

Forecast 2020 sales:

Potential Value:

Potential buyers:

Trains, subway cars, switching equipment

US$8.7-billion

US$5 to US$6-billion

Alstom, Siemens, Hitachi, private equity

BOMBARDIER AVIATION

Brands:

Forecast 2020 sales:

Potential Value:

Potential buyers:

Learjet, Challenger, Global

US$8.2-billion

US$8.5 to US$10.5-billion

Textron, Airbus, Boeing, Gulfstream, Embraer, Dassault, private equity

SOURCE: BOMBARDIER, BANK OF NOVA SCOTIA,

ROYAL BANK OF CANADA; JP MORGAN

TRAINS OR PLANES?

Bombardier is considering a sale of its aviation or transportation divisions. Here’s what they are estimated to be worth and some potential buyers

BOMBARDIER TRANSPORT

Products:

 

Forecast 2020 sales:

Potential Value:

Potential buyers:

Trains, subway cars, switching equipment

US$8.7-billion

US$5 to US$6-billion

Alstom, Siemens, Hitachi, private equity

BOMBARDIER AVIATION

Brands:

Forecast 2020 sales:

Potential Value:

Potential buyers:

Learjet, Challenger, Global

US$8.2-billion

US$8.5 to US$10.5-billion

Textron, Airbus, Boeing, Gulfstream, Embraer, Dassault, private equity

SOURCE: BOMBARDIER, BANK OF NOVA SCOTIA,

ROYAL BANK OF CANADA; JP MORGAN

TRAINS OR PLANES?

Bombardier is considering a sale of its aviation or transportation divisions. Here’s what they are estimated to be worth and some potential buyers

BOMBARDIER TRANSPORT

Products:

Forecast 2020 sales:

Potential Value:

Potential buyers:

Trains, subway cars, switching equipment

US$8.7-billion

US$5 to US$6-billion

Alstom, Siemens, Hitachi, private equity

BOMBARDIER AVIATION

Brands:

Forecast 2020 sales:

Potential Value:

Potential buyers:

Learjet, Challenger, Global

US$8.2-billion

US$8.5 to US$10.5-billion

Textron, Airbus, Boeing, Gulfstream, Embraer, Dassault, private equity

SOURCE: BOMBARDIER, BANK OF NOVA SCOTIA, ROYAL BANK OF CANADA; JP MORGAN

In contrast, Mr. Gupta predicted the transport group would sell for something in the US$5-billion to US$6-billion neighbourhood. Bombardier would need to hand over an estimated US$2.4-billion of that to the Caisse de dépôt et placement du Québec, which holds a minority stake in the unit.

But nothing is ever simple at Bombardier. National Bank Financial analyst Cameron Doerksen noted that selling the aviation division to a foreign company could translate into job cuts in Quebec, which would stir up a political hornet’s nest. In addition, Mr. Bellemare must win support for any restructuring from Bombardier chairman Pierre Beaudoin, whose family controls the company through a dual-share structure and has strong ties to the aviation business.

Mr. Bellemare’s roots are also in aerospace, including a stint running teams that built engines for fighter jets. The CEO and chairman could decide to sell the transport business, which has lower profit margins and slower projected sales growth than the aviation unit.

Analysts see three leading contenders for Bombardier’s train-making business: France’s Alstom, industry leader Siemens AG of Germany and Japan’s Hitachi Ltd. The challenge is getting any potential deal with Alstom or Siemens approved by European competition watchdogs, who scuppered a proposed union of the French and German companies last February. “There are more potential strategic buyers for Bombardier Transport,” National Bank’s Mr. Doerksen said in a report, but he qualified that by adding that any transaction “will face a lengthy regulatory review.”

Bombardier is telling investors Mr. Bellemare enjoys the luxury of time to strengthen the balance sheet, as it has plenty of capital. The company ended last year with US$2.6-billion of cash, and will receive another US$1.1-billion later this year when it closes the sale of two aerospace businesses.

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But the clock is ticking. Bombardier must raise significant sums to pay down debt, and continue to fund its share of costs for the C Series passenger jet, a US$350-million-plus obligation negotiated when the unit was sold to Airbus in 2017. RBC Dominion Securities Inc. analyst Walter Spracklin recently reduced his 12-month target price on Bombardier stock to $2 from $3 to reflect "the ever-mounting liquidity crisis, with many investors we talked to doubtful as to whether there is a solution.” Bombardier will announce financial results in mid-February, and Mr. Bellmare faces growing pressure to choose by then between planes and trains.

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