Bombardier scores big deal with Delta, federal aid request still outstanding

Bombardier received a major boost Thursday after Delta Air Lines agreed to buy up to 125 CSeries planes, a blockbuster deal that would be the largest for the troubled passenger jet program.

But Alain Bellemare, CEO of the Montreal−based aerospace manufacturer, was quick to dismiss any suggestion that the agreement could diminish the need for federal assistance, saying he remains hopeful Ottawa will come through with its US$1 billion request.

"We would welcome the participation of the federal government to add financial flexibility to what we’re doing in terms of the CSeries, but also our ability to keep investing in aerospace in the future, right here in Canada," Bellemare said in an interview.

Delta has placed a firm order for 75 CS100 aircraft with options for an additional 50 more.

Based on the list price, the firm order is valued at approximately US$5.6 billion, Bombardier said. Delivery of the aircraft to Delta, one of the largest airlines in the world, is expected to begin in 2018.

"This is a big win," Bombardier CEO Alain Bellemare said earlier during a conference call with investors.

Ed Bastian, Delta’s incoming CEO, said Quebec’s support of US$1 billion to the CSeries program was essential in his company’s decision to purchase the planes.

"It gave us a lot of confidence to be able to step forward and make the decision," he said.

"The last thing you want to do is take a financial risk around a big investment that we’re making as a company, not just the manufacturer is making."

Bombardier (TSX:BBD.B) has been at the centre of political controversy in recent months and it’s banking on the success of its CSeries planes to revive its flagging fortunes.

Earlier this year, the company announced it was cutting 7,000 jobs over two years, including roughly 3,000 in Canada, months after the Quebec government pledged public money for the aircraft manufacturer.

The federal Liberals are considering a request for another US$1 billion in funding for one of Canada’s biggest global competitors. Bombardier employs more than 70,000 people around the world and exports roughly 95 per cent of its products.

The governments of Quebec and Ontario, both provinces where Bombardier has an extensive presence, have urged Ottawa to provide financial assistance.

Bombardier has also earned the wrath of Toronto’s public transit system, which has seen its order for more than 200 streetcars encounter numerous delays.

Bellemare conceded that he is disappointed with the performance of Bombardier’s railway division, especially with the Toronto Transit Commission order. But he said he is confident Bombardier will resolve the problem.

"It’s not about the quality of the products," he said. "It’s about the challenges we have on the manufacturing side and we will address them."

The CSeries is Bombardier’s new generation of aircraft for commercial airlines and has been in development for more than a decade as an alternative to smaller models of passenger jets built by rivals Boeing and Airbus, two companies that also receive hefty state support.

The aircraft is about two years behind schedule and at least US$2 billion over budget.

The Delta order came as Bombardier, which keeps its books in U.S. dollars, reported a first−quarter loss attributable to shareholders of US$161 million or seven cents per share. That compared with a profit attributable to shareholders of US$98 million or five cents per share a year ago.

Revenue for the quarter fell to US$3.14 billion compared with nearly US$4.4 billion in the first three months of 2015.

The Quebec government’s first of two payments to Bombardier has been postponed due to unspecified issues including liquidity, according to Premier Philippe Couillard.

In reporting its results Thursday, Bombardier said that with the investment by the Quebec government, it has enough cash to turn itself around, but additional money would increase its flexibility.

"We consider that these resources will enable the development of new products to enhance our competitiveness and support our growth; will allow the payment of dividends, if and when declared by the board of directors; and will enable us to meet all other expected financial requirements in the foreseeable future," the company said in its earnings report.

Bellemare declined to answer when asked why taxpayers should pay for the restoration of Bombardier dividends, which were suspended last year.

Bombardier has signed other deals in recent months to sell the planes, including a letter of intent in February where Air Canada would buy 45 CSeries jets, with an option to purchase up to 30 more of the aircraft.

Swiss International Air Lines is scheduled to be the first carrier to put the plane into commercial service in July.

Bombardier will hold its annual general meeting Friday.

Ross Marowits, The Canadian Press