Liberal Party wins, Bombardier wins

[tdracer]

Boeing has open production slots for the 737NG and the 777 while they update for the MAX and the 777X. Slowing production then speeding it up again is hugely expensive and disruptive - so they can effectively sell the NG and triple at cost and still be money ahead. Further, spitting out 737s at ~50 a month allows huge economies of scale that simply are not available to the C Series (C Series at ~50/month would exhaust their order base in six months )

[ExDubai]

Republic filed for chapter 11. So the order is history

[peekay4]

Republic have been saying for a long time that they intend to streamline operations on a single AOC. That AOC precludes them from flying the CSeries. They could start up a new airline but the chances of that happening now, especially with the bankruptcy, is virtually zero.

I wonder if they will try to null their CSeries order through the bankruptcy process. In any case that's -40 firm CS300 orders for Bombardier.

[galaxy flyer]

Forty planes now destined to AC. The whole AC order did nothing to the C-Series order book but answer the question, "where's RAH's planes really going?"

GF

[er340790]

See the Rumours & News section. The Ch. 11 Filing may be just a 'technical' filing - to allow them to tear up their onerous aircraft leases and feeder route deals with the majors.

Whatever happened to the FREE ENTERPRISE economy??????

[peekay4]

Um, that is what Chapter 11 is for. It plays an important part in free markets, which (in part) is in to maximize value for creditors over a straight liquidation (Chapter 7).

Chapter 11 isn't a freebie for Republic Airways or anyone else to simply tear up contracts it doesn't like. With few exceptions, reorganization under Chapter 11 must be approved by the creditors.

Also, Chapter 11 includes special provisions for airlines (Section 1110) which requires Republic to continue all obligations regarding current leases through the bankruptcy process.

However, any reorganization plan proposed in court will likely reflect Republic's "single fleet type" strategy with a ton of concessions to Embraer. To put it another way, there would be absolutely no room for the CSeries under a reorganized Republic.

That is unless Republic's parent company (Republic Holdings) creates a new airline with a new business model to fly the CSeries. While anything is possible, chances of that happening now would be near zero.

[peekay4]

So the latest proposal being floated by Quebec is to take the CSeries off Bombardier's books, creating a new Joint Venture majority controlled by the Federal and Quebec governments (66%) while Bombardier would retain a minority interest (33%).

This is a "sweetheart" deal for Bombardier's founding family and a very bad deal for taxpayers:

• The Bombardier founding family will retain control of the parent company, with no change to the dual-class structure
• Taking the CSeries "off the books" allows Bombardier to "move" the program costs and cash burn to the JV, artificially boosting the parent company's near-term financials
• The deal overvalues the current worth of the CSeries program. The total government bailout will exceed Bombardier's entire market cap, yet they are only getting 66% of the CSeries
• Having 66% of the shares, the Federal + Quebec governments will now shoulder the majority of the risks associated with the CSeries
• But conversely, if/when the CSeries hits the breakeven point, Bombardier could simply buy-back the shares

Make no mistake, this entire deal is structured on the Bombardier/Beaudoin family retaining control of the parent company while offloading the CSeries cash burn and risks to the government.

So why is the Quebec (+ Trudeau) governments keep protecting the Bombardier family interests? What about the interests of Bombardier's other shareholders, employees and of the taxpayers?

[ExDubai]

Selling pitchforks and torches to the "Class B BBD shareholders" could be a hell of a deal

[peekay4]

Well the irony is in the short term BBD.B share price could get a boost since the "bad money" will be shifted off books to the new subsidiary. Bombardier might even be able to claim profit from the "sale" of the CSeries program.

Moving unprofitable ventures off books at inflated valuation was something Enron did with great success.

But ultimately the proposed deal is bad for BBD.B shareholders because it allows the Bombardier family to remain firmly in control. There will be no governance changes and no accountability for this financial disaster.

[galaxy flyer]

peekay4,

How's this deal gonna be sold to Parliament? I know there is a significant group in Trudeau's coalition that wants the family out and Trudeau has said there must be a business case for Federal government investment, of which one is hard to find.

This is a ridiculous deal--the family gets the "profitable" parts of the company; the taxpayers pick up the tab for the unprofitable and, likely bankrupt, portions. And, if it all works out the family will get it all back. You can't make this up.

GF

[peekay4]

Well it is politics after all.

• The Air Canada deal will be sold as evidence that Bombardier has a "strong business case"
• The board seats at the new subsidiary will be sold as evidence that "positive governance changes" are being made

And in reality many of those making noise about further investment in Bombardier are simply angling to get their own piece of the pie from Ottawa.

E.g., there's a lot of opposition from politicians in Alberta, but only because they also want $700 million in "infrastructure investment" from the Federal government to soften the impact of low oil prices. So as long as they get their "piece of the pie" in the upcoming March 22 budget, this opposition will go away.

Federal investment into Bombardier is looking like a done deal, and that's not necessarily a bad thing. What's wrong is giving Bombardier blank checks without demanding real changes and accountability from the company.

[Willie Everlearn]

peekay4

It IS politics after all.
The Conservative government could have altered the course of aviation in Canada back in 1957 but chose not to because of the cost. You're advocating the Liberals do the same today.
Have we learnt nothing?
Good grief

exdubai

The Republic order isn't necessarily history. The Ch 11 exit by Republic will reveal the status of their C series order. Not until. So far, there have been no cancellations and there's money to be made by them selling early slots to current or future buyers. peekay4 has a valid point, Republic could "start a new airline" using those C series aircraft and no longer have to deal with scope clauses by doing away with their present commercial agreements.
We've seen a number of US carriers emerge from Ch 11 bigger, better, and stronger than they were. It ain't over till it's over.

Willie

[galaxy flyer]

What are the odds Republic can ditch all their present contracts (read: source of funds to continue in business) and set up a new airline using very expensive C-Series? Very nearly zero! Every scope clause in the US prohibits a regional carrier from operating a RJ with greater than 76 seats or 86,000 pounds.

If they could sell their C-Series positions to generate cash, don't you think they would have done so OR BBD would have made the sale?

It ain't over, til it's over, but the possibilities have to be within reality.

[peekay4]

Originally Posted by Willie Everlearn

peekay4
You're advocating the Liberals do the same today.
Have we learnt nothing?
Good grief

What are you talking about? Perhaps you should actually read what I wrote, once again:

Federal investment into Bombardier is looking like a done deal, and that's not necessarily a bad thing. What's wrong is giving Bombardier blank checks without demanding real changes and accountability from the company.

So what part do you disagree with?

Do you think we SHOULD give blank checks to Bombardier without demanding accountability from the company?

I know you own BBD shares, but, good grief!

[galaxy flyer]

The problem I see is the huge moral hazard that was present long before the C-Series reached its parlous state. The company (read: the family) believed rightly, as it turns out, that however bad the decisions or the execution, the Canadian government (read: taxpayers) would bail them out--too big to fail guaranteeing failure, as it were. BBD has repeatedly seen their bad bets covered so press on design/building three new planes AT ONCE, using unfamiliar technologies and with a record of poor process engineering.

GF

[Willie Everlearn]

GF
Cancelling existing commercial agreements would likely put Republic, or whatever 'new' name airline it chooses to call itself, in a position to do whatever it wants with whatever aircraft type it wants. I don't see how they could be held to existing scope clauses in cancelled agreements. Once they emerge from bankruptcy protection, we'll know where they're headed and whether or not scope will apply. Assuming they'd remain a regional airline with existing commercial agreements is merely that, an assumption. My assumptions are that they will either move on to something new, (as regionals will likely shrink in size or disappear) or they (Republic) might even cease to exist.

peekay4
You keep emphasizing the poor management of BBD as the reason why they've ended up where they are today. Pretty hard to argue or disagree with you on that. But, this company is under new management and has been for most of 2015. You don't seem to have taken this into account. (Correct me if I'm wrong) New management are well qualified and capable of guiding BBD in the right direction. They're all aerospace executives with proven records. They've made many significant changes already and I think, given time, we'll see them right the ship. But it will take time and like many who invest in this company, waiting is agonizing.
Ripping them apart for past decisions and poorly timed multiple new aircraft programs may be an accurate assessment but it's easy to do and nothing more than hindsight. Most of us know how BBD ended up in this position but this management group wasn't around when those decisions were made.
I haven't heard them asking the Canadian government for any "blank cheque". They did ask for their investment of $1 billion and rare is it that our government gets a ROI. Whether or not they would, remains to be seen as they've yet to invest.
Junior gave $2.6 billion to underdeveloped nations to fight global warming and no one in this country balked. I'm sure politics and greed will see a lot of that money diverted but I'm also confident not many Canadians will squawk.
Conservatives all but killed aerospace in 1957 and you're advocating Junior put a gun to this company's head with conditions. I have little doubt negotiations will cover a lot.
If he ever does invest in BBD for Canadians, I'm sure some of that money will be to someone's benefit. Hell, some might even be bought off.
That's nothing new, it's just reality.
I happen to be in favour of helping this company succeed. Just like the EU did when Airbus was born. One things for certain, if BBD fails, a lot of businesses fail with it and that would be disastrous for Canadian aerospace. For me this is a show stopper.

Willie

[peekay4]

You keep emphasizing the poor management of BBD as the reason why they've ended up where they are today. Pretty hard to argue or disagree with you on that. But, this company is under new management and has been for most of 2015. You don't seem to have taken this into account. (Correct me if I'm wrong)

Hi Willie, you are still doing selective reading. I said nothing about management. I wrote about governance. Big difference!! Once again:

But ultimately the proposed deal is bad for BBD.B shareholders because it allows the Bombardier family to remain firmly in control. There will be no governance changes and no accountability for this financial disaster.
...

• The Air Canada deal will be sold as evidence that Bombardier has a "strong business case"
• The board seats at the new subsidiary will be sold as evidence that "positive governance changes" are being made

Governance == Board of Directors, not management.

Control of the Board is still held firmly by the Bombardier family. They have 60% of the votes since their Class A shares have 10 votes each vs. Class B shares having only 1 vote each.

And, even from a management perspective, the current CEO Alain Bellemare still ultimately reports to the old CEO, Pierre Beaudoin, who is now Executive Chairman. There was talk late last year that Beaudoin would resign his position -- which would be a good first step -- but that didn't happen.

[galaxy flyer]

Hello Willie,

Cancelling existing commercial agreements would likely put Republic, or whatever 'new' name airline it chooses to call itself, in a position to do whatever it wants with whatever aircraft type it wants. I don't see how they could be held to existing scope clauses in cancelled agreements. Once they emerge from bankruptcy protection, we'll know where they're headed and whether or not scope will apply. Assuming they'd remain a regional airline with existing commercial agreements is merely that, an assumption. My assumptions are that they will either move on to something new, (as regionals will likely shrink in size or disappear) or they (Republic) might even cease to exist.

I never said that the scope clauses would apply IF Republic got out of the FFD contracts with main lines. What I speculated is they must maintain those alliances to have a business plan for the creditors to agree to leaving Chapter 11. If they presented to the creditor's committe a plan dropping their FFD contracts and become a start up with C-Series as the fleet competing with the very mainline so they had been contracted to, the creditors would gasp and start laughing uncontrollably. With record profits, DL, AA and UCH will kill 'em and the US ULCCs would box 'em in on the low cost side. There is no room for new players, just look at VA

GF

[_Phoenix]

Bombardier stocks are soaring today, is it due of this press release?
Trudeau wants Bombardier Inc's superlative CSeries jet to be a national success story Financial Post

[Willie Everlearn]

GF

I was reading this morning about Republics filing. Now, I fully admit to not knowing the full spectrum of what they can and can't do as far as Chapter 11 is concerned, but I have to agree, their original order looks more and more likely to be cancelled.

peekay4

I take your point after a re-read.
Some additional comments, if I may.
I wouldn't worry about what the family gets for a buyout or how that is achieved. I just hope they will be bought out.
Bombardier is a family owned business and as such the family is entitled (even though some may be pist off at the very thought) to a fair price for their company if they are going to be forced out. As an investor I'd like to see that happen as soon as possible.
The lessons of Avro Canada and Dornier cannot be lost on Bombardier.
I don't totally disagree with you but I think we have areas where we have differences of opinion on the subject, and that's fine.

Willie