Quebec Taxpayers Give $1.3 Billion Bailout to Bombardier, Inc.: What Now?

Even after a $1.3 billion bailout, Bombardier, Inc. (TSX:BBD.B) is on its last legs.

| More on:
The Motley Fool

This week, Bombardier, Inc. (TSX:BBD.B) posted $6.5 billion in losses. With a crushing debt load and an underwhelming project pipeline that needs fresh cash to develop, many analysts have been predicting the worst. In the past 12 months shares are down 65%. In the past 30 days alone, the stock is down over 20%.

Fortunately for the company, it appears as if Canadian taxpayers have come to the rescue.

The bailout

Bombardier is one of Quebec’s largest employers. With 15,000 workers in the province, the government clearly has an incentive to keep the company afloat. That’s why this week it announced a plan to provide $1.3 billion in financing to support Bombardier’s CSeries jet project, which is about two years behind schedule. After the deal, Bombardier will own 50.5% of the new joint venture, and 49.5% will belong to the province.

While many are skeptical over the project’s future profitability, it represents one of the company’s only lifelines to long-term solvency. “This partnership (with Quebec) comes at a pivotal time, with the CSeries on the verge of certification,” said the company’s CEO. Still, some analysts expect that Bombardier will need another $2 billion over the next five years to get the project completely online, meaning that there are still significant financing hurdles to be met.

What’s next?

It looks like the entire future of the company will be reliant on the success of the firm’s CSeries jet line. In the beginning, the project had a promising future. Bombardier focused on making the jet fuel efficient and incredibly quiet; it was built around the Pratt and Whitney PurePower engine that promised to cut noise in half compared with older engines.

Unfortunately, delays wreaked havoc on the jet’s viability. After a two-year production and design delay, Airbus Group SE and Boeing Co got a critical head start.

Instead of designing an entirely new jet around quieter and fuel-efficient engines, both simply retrofitted existing aircraft with the new engine. Now, both companies are selling these new models hand over fist, completely destroying Bombardier’s first-mover advantage. Combined, Airbus and Boeing have sold over 6,000 of the new, quieter, and more efficient jets, whereas Bombardier has pre-sold only around 250.

The company’s only other promising project, the Learjet 85 program, has also been cancelled completely due to a lack of sales. For now, it looks like Bombardier is putting all its eggs into one basket despite heavy competition.

This is not the end to Bombardier’s struggles

While the recent bailout will give Bombardier some breathing room, almost everyone can agree that the company will need billions of additional cash sooner rather than later. With massive losses, it will have no choice but to sell off additional assets or tap the equity or debt markets. Even if it does gain access to financing, there is significant doubt that its CSeries can even compete with Airbus and Boeing, who are already two years ahead.

If you’re considering an investment in Bombardier, prepare for massive volatility.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

More on Investing

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

ways to boost income
Investing

Are Telus and BCE Stocks a Smart Buy for Canadian Investors?

Telus (TSX:T) and BCE (TSX:BCE) have massive dividend yields, but their shares have been quite sluggish!

Read more »

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

rising arrow with flames
Investing

2 Riskier Stocks With High Potential for Canadian Investors in November

Risky stocks such as Well Health Technologies have the potential to provide life-changing long-term returns.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »