Bombardier Inc. and the federal government are at odds over a potential public investment in the plane maker, with Ottawa insisting the company’s dual-class share structure be modified, according to people familiar with the talks. A deal is far from certain.
Ottawa is looking for a different agreement than the $1-billion (U.S.) pact Bombardier struck with Quebec, said the people, who spoke on condition they not be identified.
Quebec did not insist on any changes to the plane maker’s corporate governance in exchange for its investment but the federal government is pressing for such changes, these people said.
Negotiations hit an impasse late this week when Bombardier objected to Ottawa’s request that Bombardier modify its dual-class share system, one source said. The two sides also disagreed over the structure of a deal, the person said.
“The dynamics are ever evolving but both sides are still talking,” said the source, who stressed there is no dispute over the $1-billion amount Bombardier is asking for from the federal government. Unless a last-minute breakthrough can be reached, an agreement appears unlikely by the time Bombardier holds its annual meeting on April 29.
One major stumbling block is the structure of a deal. Discussions centre over the type of federal investment, with Ottawa favouring credit financing while Bombardier prefers a direct equity participation in its new C Series airliner program.
The other issue is Bombardier’s ownership structure. Bombardier’s founding family controls the plane and train manufacturer through a special class of shares with multiple votes – something federal officials have described as an irritant as Ottawa looks for Bombardier to make further compromises in exchange for aid. The family has consistently rejected suggestions it should loosen its grip on the company.
“The numbers are fine. The issue isn’t the money. It’s the dual shares and the structure of the deal,” the source said. “There are different ideas being floated [about the structure] and we haven’t landed on a common one. It’s still up in the air.”
A perception remains in the industry that while Bombardier has made an effort to clean house and shake up its executive suite, it hasn’t gone far enough to ensure its survival. The company remains weighed down by long-term debt of $9-billion, accumulated in part through questionable decisions by its controlling shareholders and former top executives. Pension giant Caisse de dépôt et placement du Québec declined to participate in a major way in Bombardier’s equity offering last year, in part because the plane maker refused to change its ownership structure.
“It would be very unwise, and disadvantageous, to Canadian taxpayers to have federal money being poured into this company without dismantling the multivoting share structure,” said Anita Anand, a law professor at the University of Toronto and vocal critic of dual-class shares. “This is a very big issue. It’s precedent-setting. If aid goes to Bombardier, the question is going to be, who’s next?”
In addition to investment bank Morgan Stanley, Ottawa has hired law firm Osler Hoskin & Harcourt LLP to advise it on the transaction, a source said. Over the past two days, senior Quebec ministers have been meeting without their aides, sometimes at the Prime Minister’s Office.
Publicly, Prime Minister Justin Trudeau and his ministers have lauded the C Series jet and called Bombardier an anchor company for Canada’s aerospace industry. Privately however, senior federal officials have taken a harder stand, suggesting a federal investment would not come without additional changes or sacrifices from the company beyond what it has already done.
A Bombardier spokesperson declined to comment Friday, saying only that talks are continuing. Philip Proulx, a spokesman for Economic Development Minister Navdeep Bains, declined to comment on specifics of the discussions.
Ottawa’s demands put Bombardier in a difficult spot. Federal aid would certainly help the company offset early C Series production losses and also allow it to get more aggressive in setting sales prices. But accepting changes to the dual-class shares could usher in an ownership structure prone to conflict between government, public shareholders, creditors and the family.
The plane maker signed a memorandum of understanding with Quebec last fall under which the province agreed to invest $1-billion for a 49.5-per-cent equity stake in a new C Series limited partnership as well as warrants to up to 200 million Bombardier shares. The company has said it expects to finalize that deal in the second quarter this year.
The rift comes as Bombardier tries to lock down a critical order from Delta Air Lines Inc., part of a wider effort to sign up a major U.S. airline as a C Series customer. America’s second-largest airline by passenger traffic is weighing a purchase of as many as 125 C Series jets in a deal that could breathe new life into the plane’s prospects and convince other buyers sitting on the sidelines to place orders, Bloomberg reported. A final sales agreement has not been reached, a Delta spokesman said.
A Delta order could have a “snowball effect and convince other buyers who are currently sitting on the sidelines to follow suit,” Desjardins Securities analyst Benoît Poirier said. Other potential buyers could include British Airways and JetBlue Airways, he said.
Bombardier shares rose 6 per cent Friday on the Toronto Stock Exchange to close at $1.62.
Bombardier has said financial backing from Ottawa for the C Series would provide a tremendous lift to the plane program, showing potential customers that a national government stands behind the aircraft. At the same time, it would reaffirm that the country is committed to playing in the aerospace big league, with the risk and reward that entails.
Two years late to market and $2-billion overbudget, the C Series represents Bombardier’s biggest ever strategic bet. The airliner is going up against the smallest jets made by industry giants Airbus Group SE and Boeing Co., which have pushed back hard against the newcomer with discounts supported by higher assembly line volumes. Both rivals benefit from significant support from their home governments in Europe and the United States.
With files from reporter Christina Pellegrini in TorontoReport Typo/Error
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