An Air Canada purchase of Bombardier Inc. planes that was assisted by the federal and Quebec governments may help salvage one of the most ambitious industrial projects undertaken in Canada, but Ottawa is still assessing whether to participate in a bailout of the aerospace giant.
The country’s largest airline has signed a letter of intent to buy as many as 75 of Bombardier’s new C Series planes, giving the troubled Montreal-based transportation giant the first order it has landed since September, 2014, and a marquee customer.
The order came at a steep price for Bombardier. Industry sources said they believe Air Canada will pay just $30-million (U.S.) each for the planes, a discount of almost 60 per cent from the list price of $72.4-million. Bombardier also announced layoffs of 7,000 employees in Canada and other worldwide locations over the next two years.
But senior executives in the industry and even some existing customers had urged Bombardier to offer hefty discounts to land such prominent customers as Air Canada.
What’s still unknown is whether the federal government will join the Quebec government and provide $1-billion in financial help to Bombardier to give the C Series a further boost, whether the Air Canada letter of intent will lead to a final order and whether the deal will be the jolt the program needs to keep it alive. The C Series is $2-billion over its original budget, more than two years behind schedule and no customer had placed an order in almost 18 months.
A senior federal official said the Liberal government will announce before the end of March whether it will help Bombardier with equity in the company or financial credits.
The official, speaking on background to The Globe and Mail, said the Air Canada letter of intent will be evaluated as to exactly how much Ottawa will pony up to Bombardier.
“We said we would have to look at the business case. That’s going to be taken into account,” the official said. “We know there is a lot of work to be done on the financing. That is where the real work is going to go now.” However, the official said the way the Air Canada deal is structured probably means it won’t have any impact on what Ottawa decides in terms of the bailout.
“The money they are looking for has to do with production, and as you know, the planes are not paid until the back end and not the front end. What they are looking for from the federal government is assistance to complete the program, which means money sooner rather than later.”
At news conference in Ottawa, Transport Minister Marc Garneau said the government is reviewing the Bombardier request for federal money carefully.
“It is after all, a great deal of money that belongs to – that we are entrusted with from the taxpayer – and we will make a decision in due course after having fully considered the proposition that has been put forward by Bombardier,” Mr. Garneau said.
Federal Industry Minister Navdeep Bains and senior officials in the Prime Minister’s Office were informed in late November that Air Canada and Bombardier were in talks.
The talks came after the airline lost a Quebec Court of Appeal ruling that found it had violated the Air Canada Public Participation Act by moving part of its heavy maintenance work from Montreal to other Quebec locations and companies in the United States, Singapore, Israel and Ireland.
The Quebec government took Air Canada to court over the move because the act stipulates that the airline is required to do maintenance in certain locations in Quebec.
Air Canada appealed to the Supreme Court, but sources say the airline was worried it would lose the appeal and be forced to relocate the maintenance facilities in Quebec at great cost.
As part of the letter of intent, Air Canada and Quebec have agreed to end the litigation, while Ottawa has promised to change the Air Canada Act to remove requirements that maintenance be performed in Quebec.
The reforms would not alter the 25-per-cent foreign investment limit or the stipulation that Air Canada’s headquarters be located in Montreal, a Transport Canada official said.
As part of the deal, Air Canada promised to perform heavy maintenance on the C Series in Quebec for at least the next 20 years.
“The end of the litigation between Quebec and Air Canada will enable the federal government to clarify this act in order to avoid future litigation,” Mr. Garneau said.
Mr. Garneau insisted Ottawa was not involved in the deal making between Air Canada and Bombardier other than its pledge to modernize the Air Canada Act.
Air Canada chief executive officer Calin Rovinescu said there was no pressure from the federal government to make the purchase.
Mr. Rovinescu and Bombardier chief executive officer Alain Bellemare were asked at a news conference in Montreal why the deal is a letter of intent and not a final agreement.
“It’s a perfectly normal process,” Mr. Bellemare said. “All of our competitors do it.”
Price was just one consideration, Mr. Rovinescu said. Other factors include the status of the rest of Air Canada’s fleet and the impact the new planes would have on costs per available seat mile, a key measure of airline performance.
Air Canada is an astute buyer, he noted.
The C Series will replace Brazilian-made 97-seat Embraer planes that now carry passengers on such routes as Vancouver-Winnipeg.
The new Bombardier plane could be useful on such transborder routes as Toronto-San Francisco, said industry analyst Robert Kokonis, president of AirTrav Inc. Using a 135-seat CS300 plane on that route could free up Boeing 787 or Boeing 777 planes to be used on additional intercontinental routes, Mr. Kokonis said.Report Typo/Error
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