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Oct 18

Bombardier clouded in uncertainty amid feds' indecision: Quebec finance minister

Bombardier CS300

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MONTREAL - The Canadian government’s failure to make a decision on Bombardier Inc.’s $1-billion (U.S.) investment request is creating unnecessary uncertainty for the plane maker, Quebec’s Finance Minister said.

“The federal government has been looking at this now for a number of months and we think it’s time for them to make up their minds,” Carlos Leitao told The Globe and Mail during an editorial board interview Monday in Toronto.

“There’s less urgency now than six months ago. But clearly this uncertainty as to whether or not the federal government will participate, I think that in itself is sending the wrong signal.”

Bombardier signed a memorandum of understanding with Quebec in October, 2015, under which the province agreed to invest $1-billion for a 49.5-per-cent equity stake in a joint venture for its new CSeries airliner. The intervention came at a critical time, reassuring investors anxious about the company’s cash situation and comforting prospective customers that the manufacturer would be there to build and support its aircraft.

Quebec called on the federal government to match the investment and Bombardier approached Ottawa shortly after with a formal request.

For the province, it was an easy decision to protect a strategic company that represents 2 per cent of its economic output. The result was clear: Bombardier subsequently won a game-changing order from Delta Air Lines for up to 125 CSeries aircraft.

For Ottawa, the rationale is arguably more complex.

Although Prime Minister Justin Trudeau and his ministers have lauded the CSeries plane and called Bombardier an anchor company for Canada’s aerospace industry, there is also palpable concern that Ottawa not be seen as propping up a company with a challenged future.

A perception remains in some quarters 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, the founding Bombardier-Beaudoin family, 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.

Federal officials have expressed reservations about Bombardier’s dual-class share system, which gives the Bombardier-Beaudoin family control over the company through supervoting stock. It has been a key point of contention in the investment talks between Bombardier and Ottawa as each side tested the limits of the other in recent months.

The two sides were also at odds over the structure of a deal. Ottawa favoured a financing for the parent company while Bombardier prefers a direct equity participation in the CSeries program like the one Quebec made, sources said.

“The role of government, in our opinion, it should not be to support companies at all costs,” Mr. Leitao said. He said Quebec’s investment in Bombardier represented support for a strategic business with a state-of-the-art product at a difficult time. Ottawa’s calculation is different, Mr. Leitao acknowledged.

Last week, federal Innovation Minister Navdeep Bains said the government is pushing for an agreement with Bombardier, adding: “It’s not a matter of if but how we want to make the investment.”

Ottawa wants the company to maintain its head office in Montreal and make commitments regarding research and development activities in Canada, the minister said.