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Bombardier may be a year out from being bankrupt
#1
Bombardier has an estimated $3B in cash available.    It burnt through $1.6B in the first half of its current fiscal year.   Bombardier may be bankrupt this time next year.  

The last rounds of bonds and share issuance went horribly, the Caisse (normally a bid pro-Quebec booster) made a token investment.   Even the Caisse questions the mixed share structure that allows the Beaudoin family to control voting despite only having 14% of the equity.

One option would be to sell all/part of its rail division.   Beijing Infrastructure Investment Co., a Chinese government-owned investment firm, offered to acquire 60-100% of Bombardier's Transportation segment.  Bombardier reportedly rejected the offer one week later, indicating that the Company would not consider the sale of a majority stake at this time. Analysts believed that Bombardier did not agree on the price of the sale, noting that the management’s contention is that the division is worth more that the offered price.  Bombardier will soon find out that when you're burning cash at that rate, beggars can't be choosers.

Bombardier tried to get Airbus to take over the C Series, unsuccessfully.   Basically, Bombardier was asking a competitor to take obver a project that is 90% complete and take the majority of its revenue.   It's that desperate.

The C Series uses cutting edge material and systems technology to reduce fuel usage.   Unfortunately, fuel is a lot cheaper now.   The incentive for airlines to make that capital investment is a lot lower.

Airbus and Boeing can discount their competing regional jets and take a loss, just to eliminate Bombardier.    They're giants and Bombardier is a midget (by comparison) with $9B in debt.

All this smells bad, I forsee an expensive government bailout.
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#2
Fuel still costs money, and future fuel costs are unknown. Cost efficiency is a huge part of all airline equipment purchasing decisions. Cseries is very cost-effective on operation and acquisition costs, and much more so than the nearest A/B competitors, the A319neo and 737-MAX7 (neither Airbus or Boeing offer any regional jets). The disadvantage it has is that there is no commonality with the carriers' existing Airbus or Boeing fleets, the same problem that Embraer also has.

If Bombardier cannot sign up a major customer in the next six months, or find a buyer for the rail division, I expect that one of Airbus or Boeing will pick up the remains for a song (rather than a government bail-out): the Cseries is technologically an excellent aircraft that would well complement the two giants' existing product lines.
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#3
Embraer chose wisely, by not taking on Airbus and Boeing in that niche of the plane marketplace. Bombardier is finding out that taking on giants can be painful.

Fuel costs far less, Airbus and Boeing are upgrading their existing options, as well as discounting and adding incentives that Bombardier cannot afford to match. Airbus and Boeing won't help Bombardier, neither will Embraer. Moreover, the Beaudoin family's hubris will stop Bombardier from taking the necessary steps and eating humble pie. With effective control of voting, options are becoming choked off.

The Caisse wanted a change of 10:1 voting for class A shares to 6:1. With Bombardier burning cash at a profligate rate with an empty order book for the CSeries, the most likely option I see to salvage Beaudoin family pride is a compromise on some sort on voting privileges in return for more direct and indirect provincial and federal subsidies in the form of debt and equity investment.

So, a government bailout.
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#4
(10-15-2015, 07:27 AM)numberguy Wrote: Embraer chose wisely, by not taking on Airbus and Boeing in that niche of the plane marketplace.   Bombardier is finding out that taking on giants can be painful.

Bombardier to target Brazilian giant Embraer for possible partnership 
Quote:purned by Airbus Group SE, Bombardier Inc. intends to approach Brazilian aerospace competitor Embraer SA to discuss forming a partnership to prop up the Canadian company’s C Series passenger jet.

A senior aviation executive close to Bombardier said Tuesday that the company had not approached Embraer yet, “but I know they intend to.”

If they reach an agreement Embraer is going to get quite a bargain. Even so the combined effort still has to go against Airbus and Boeing, who are in turn backed by the support of EU and US governments. 

Like you I'm skeptical that anything will come of this.

Quote:So, a government bailout.

And even more likely if the Liberals and NDP form a new government (not that the Reform guy didn't also make subsidies to BBD during his tenure.)
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#5
...so we could call the merged company (Bombardier + Embraer =) BardEm, and feature Javier Bardem as spokesperson, and his No Country For Old Men character as salesperson/enforcer?
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#6
Maybe the character he voiced in Automata could be the spokesperson? Fu-tur-istic...

Edit: On a serious note, I can't see Embraer helping Bombardier out, and will be surprised if Bombardier actually does approach them. I mean, they're mortal enemies after all.
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#7
I agree MidTowner. A Brazilian coop student I had for a work term told me his dad (who was decently high up in the Embraer food chain) regularly delighted in Bombardier's recent woes. I don't see Embraer, Airbus (who just said no) or Boeing helping Bombardier out. They'd rather lose incur an opportunity cost and make Bombardier lose real money. Boeing's recent discounts to their older regional jets seem to support this, the analysts on my feed are saying Boeing is losing money on some of those deals, all to the aim of shutting Bombardier down.

http://ca.reuters.com/article/businessNe...KM20151016 <--- that may not come in time, as Bombardier is burning cash like one of my ex-s in a good mood.

I am doing well on my shorting, I am thinking the Caisse will face pressure to come back and offer a 8-1 voting offer for class A shares (they wanted 6-1 versus the 10-1 ratio now), especially after Monday's election results.
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#8
Boeing doesn't make any regional jets.

And the smallest 737MAX variant, the -7, has secured only 60 orders from three airlines, one of them Canada Jetlines (which has yet to secure financing).
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