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Jan 17, 2020

'50-50' chance Bombardier will be in rail by 2025: Former Caisse exec

Bombardier has a 50% chance of being in rail business in three years: Michel Nadeau

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Bombardier Inc. is destined to become a shell of its former self as the ailing plane-and-train maker struggles with liquidity, according to a former executive of one of Canada’s largest pension funds.

“The dice was rolled on the wrong side. It was a difficult year for Bombardier. The market was really disappointed,” Michel Nadeau said in an interview with BNN Bloomberg. He's the former deputy CEO at Caisse de dépôt et placement du Québec and now executive manager at the Institute for Governance of Private and Public Organizations.

“All three major operations of Bombardier are not providing the cash needed for the operations of the company,” he said.

Bombardier shares sank in the largest one-day move in its history on Thursday, dropping 32 per cent on the Toronto Stock Exchange. The dramatic drop came after the Montreal-based company announced it is rethinking its joint venture with Airbus SE on the A220 program, formerly known as the CSeries. The company also forecasted fourth-quarter sales numbers that trail the lowest of analyst estimates in a Bloomberg survey, as its rail division continues to struggle.

The company has fewer assets left to divest if it needs to raise cash, following its pending deal to sell its CRJ regional jet business to Mitsubishi last June while ceding control of the CSeries to Airbus. 

Bombardier may decide to either trim its stake in its rail business or else exit it all together, Nadeau said.

“It’s a 50-50 chance that in three, four, five years from now, Bombardier will still be a shareholder of the rail division,” Nadeau said.

He added Bombardier isn’t alone in its rail woes as the industry struggles globally amid technological changes.

“More and more a train is a matter of software. It’s really a big computer … it’s much more complicated than it was in past years,” he said.

“We really don’t understand if it’s just temporary problems or [if] they are really structural challenges that could take hundreds of millions of dollars to solve. Bombardier does not have these hundreds of millions of dollars to invest in the rail division.”

As for the Caisse, a stakeholder in Bombardier’s rail business, Nadeau said it should be just fine.

“It’s not a problem, they will get the money at a very good rate of interest,” he said.