Friday 27 April 2018

Bombardier fights twin threat to rail and jet operations

Alain Bellemare
Alain Bellemare

By Frederic Tomesco

Bombardier's turnaround plan is coming under threat from stepped-up challenges to the company's rail business and cutting-edge jetliner.

The Canadian manufacturer risks being jilted by Germany's Siemens AG, which is now exploring a rail-equipment deal with Alstom SA of France after months of talks with Bombardier. Separately, the US government is set to decide this week whether tariffs should be imposed on Bombardier's C Series aircraft after a complaint by Boeing Co which accused it of selling its jetliner to Delta Air Lines at less than fair value, while benefiting from government subsidies in Canada.

The developments imperil CEO Alain Bellemare's two-year-old effort to reshape Bombardier, which has also relied on financial support from Quebec and the federal government. Losing out on a Siemens deal would weaken Bombardier's rail unit, its biggest business, against the industry leader from China. An adverse trade ruling in the US would hamper demand for its priciest jetliner.

"It would be a loss for Bombardier if Alstom and Siemens come together because this would leave them in the cold," said Karl Moore, a professor of management strategy at Montreal's McGill University. "At the same time, you run the risk of the C Series being shut out of the US market until the issue of duties is settled, which will take some months."

Bombardier tumbled 6.3pc to C$2.22 at the Friday close in Toronto, the biggest decline in more than three months. The widely traded B shares are at the lowest level since May.

Alstom said Friday it was in talks with Siemens about a possible combination of their rail businesses, adding that "no final decision has been made." The confirmation came hours after the French government signalled it supports deeper corporate ties with Germany, suggesting a deal between Levallois-Perret, France-based Alstom and Munich-based Siemens would have political backing.

Bloomberg News reported Thursday Siemens was negotiating with Alstom and Bombardier, giving the German firm two options to pursue consolidation. While declining to comment on its competitors, Bombardier said Friday it was weighing "multiple options" for its rail business - repeating a phrase Mr Bellemare (pictured) has used in the past.

Getting left at the altar "is a new risk" for Montreal-based Bombardier, said David Tyerman, an analyst at Cormark Securities in Toronto. "Bombardier is going to be the guy without a dance partner. If geopolitics come into play, you really don't have anybody in your corner."

The rail companies are looking to join forces to compete with industry leader CRRC of China, which was formed from a 2015 merger of the country's two main regional train makers.

The company controls about half the global market for rail cars and locomotives, Desjardins Capital Markets estimated in a report this year, compared with 12pc each for Bombardier and Siemens and about 11pc for Alstom. (Bloomberg)

Irish Independent

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