After months of negotiations, Bombardier Inc. has reached a definitive agreement with the Quebec government on a US$1−billion investment in the CSeries passenger jet program.
The two sides have been working out details of the agreement since the plan was originally announced in October.
The Montreal−based company (TSX:BBD.B) is slated to receive the money in two instalments of US$500 million, the first June 30 and the second Sept. 1.
Once the Quebec government’s investment is complete, it will own 49.5 per cent of a new limited partnership with all the assets, liabilities and obligations of the CSeries aircraft program, including larger versions of the plane beyond the CS100 and CS300 should they be developed.
Bombardier CEO Alain Bellemare said the investment demonstrates the provincial government’s confidence in the company’s largest aircraft.
"Their investment will accelerate the momentum we’ve created, strengthen customer confidence in the aircraft and provide Bombardier with the financial flexibility needed to compete and win," he said in a statement.
Premier Philippe Couillard has said Quebec’s intervention in the CSeries was key to securing orders from Air Canada and Delta Air Lines.
Air Canada said Thursday that it continues to work on finalizing a contract with the manufacturer for up to 75 CSeries planes after the Senate passed amendments giving it more flexibility on conducting heavy maintenance work in Manitoba, Quebec and Ontario.
An Air Canada executive threatened in testimony before a Senate committee to walk away from its CSeries order and not create so−called centres of excellence in Manitoba and Quebec if it wasn’t given relief from obligations under the Air Canada Public Participation Act.
Meanwhile, Finance Minister Bill Morneau said the federal government is continuing to negotiate potential financial support for Bombardier, which is seeking $1 billion from Ottawa.
"We believe that long−term (the aerospace sector) is one of the more innovative places in the economy, so in that regard, having a leading company like Bombardier is important and we’re engaging with them to think about how we can ensure that the sector remains successful," he told reporters after speaking in Toronto to the Economic Club of Canada.
Morneau wouldn’t discuss stumbling blocks, but Ottawa has reportedly pushed Bombardier to change its voting structure, something the founding family that controls the company through multiple voting shares insists it has no intention of doing.
The CSeries aircraft is two years behind schedule and has incurred about US$2 billion in cost overruns. The first plane is slated to be handed over to Swiss Airlines next week and enter into service July 15.
Quebec Transport Minister Jacques Daoust said the partnership with Bombardier will ensure the employment of up to 2,500 workers along with preserving the CSeries headquarters, assembly, manufacturing and research activities in Quebec for at least 20 years.
"So this is a win−win relationship that will benefit all Quebecers and the entire aviation sector," he said in a news release.
The new entity will be headed by Fred Cromer, president of Bombardier Commercial Aircraft. The board will contain three Bombardier nominees — former Quebec premier Daniel Johnson, who will be chairman, Bellemare and chief financial officer John Di Bert. Quebec will nominate two members.
Under the revised deal, Quebec will receive warrants to purchase up to 100 million Bombardier Class B shares, or about 4.26 per cent of its total outstanding shares. That’s half as many at the same price of $2.21 per share that was outlined in the preliminary deal.
Dominique Anglade, Quebec’s economy, science and innovation minister, said the new deal removes a price cap that allows the government to obtain fair market value when it eventually sells the shares.
"(It) allows us to obtain the real price when the government’s shares are eventually sold in five or seven years or whenever," she told reporters.
Bombardier is still able to buy out Quebec’s investment, although details were not disclosed.
Moody’s Investors Service upgraded Bombardier’s outlook to stable, saying it has enough cash to manage through 2018.
"Bombardier has made important progress over the last six months," it said in a report, adding that any federal would help extend the company’s reserve fund.