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Feb 7, 2020

'Corporate arrogance': Money managers on Bombardier's plight

Bombardier 'in survival mode': Portfolio manager


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Times are tough for Bombardier Inc., which has been offloading assets at a seemingly furious pace in a bid for survival as it swims in a pool of more than US$10 billion in debt.

The Quebec-based plane-and-train maker is turning into, or has already become, just a skeleton of what it once was. Earlier this week, the Wall Street Journal reported the company is in talks to sell its private jet business to Textron Inc. If that deal pans out, it will follow a series of other divestments, including handing control of the CSeries to Airbus and a pending deal to sell its CRJ jet unit to Mitsubishi

Meanwhile, its rail business is also struggling, with a former executive of one of Canada’s largest pension funds having said Bombardier’s rail future comes down to a coin flip.

Below, portfolio managers weigh in on what’s behind the once-mighty industrial titan’s fall from grace, and what the future may hold.

David Baskin, president, Baskin Wealth Management

“It's a story of corporate arrogance, greed and mismanagement by a family company that has multiple voting shares and doesn’t have to answer to an independent board or to the common shareholders.

The thing that has really killed them, and which I think when the company fails will be seen as the deathblow, is this decision to compete against Boeing and Airbus by creating the CSeries of jets. They bet the whole company on it and failed.

I can’t imagine either the Canadian or the Quebec government coming up with more money in these circumstances. Maybe I’m wrong, but it’s very hard for me to see the taxpayers putting up with more money going down the sinkhole.”

Christine Poole, CEO and managing director, GlobeInvest Capital Management

“Bombardier’s problems include an overleveraged balance sheet, continual bailouts and an inability to execute in its businesses and meet operational targets. The company is controlled by the Bombardier family, so ultimately, they must be held accountable. Their rationale for the multi-voting structure is to enable investing for the long-term, preserving jobs and prevent dismantling of the company, which is questionable given the events over the last couple of years.

Its future is difficult to forecast or envision. Depends on what is left.  For now, Bombardier is not considered a sound investment.”

Greg Taylor, chief investment officer, Purpose Investments

“Bombardier was in a tough situation a few years ago with their aerospace division, caught between a battle between Airbus and Boeing. It was really an impossible situation and they took on too much debt. They really need to figure out how to restructure the business for the future. It’s going to be messy and uncertain for the next little bit.

Certainly, it’s going to be a smaller company going forward. It has to be more narrow-focused and get the operations up and running. It’s such a tricky business. It’s so dependent on government contracts and you’re competing with the big boys. So they need to figure out how to work in that environment and make sure their balance sheet is sustainable going forward.”

Bruce Murray, portfolio manager, CEO and CIO, The Murray Wealth Group

“The financial stress of the company is such that they can’t afford to wait any more or the whole company may go down. The business-jet division is cleaner and easier to sell than the rail/transit business, which is tied up with a lot of commitments to governments for local content at the manufacturing level.

Another great disappointment for Canadian business, like Nortel and BlackBerry. We are losing a global technology leader, this time due to the financial stress of developing the CSeries and trying to break into the large passenger duopoly of Boeing and Airbus.”

Norman Levine, managing director, Portfolio Management Corporation

“They were great at being the first in a lot of businesses, but none of their businesses had moats. Nothing they had was totally patentable. So they started attracting competition. They spread themselves very thin. They required lots of capital to keep all these businesses going. And being a family-held company, it became harder and harder because they wouldn’t give up control. If it was an outside board of directors with adults on it, this probably would never have happened.

They’re selling what they can to survive. It’s not really up to them what’s going to be left. It’s up the market what’s left.”

Ross Healy, chairman, Strategic Analysis Corporation and portfolio manager, MacNicol and Associates Asset Management

“They didn’t need handouts from the government. The equity market would’ve cheerfully given them a billion dollars on their numbers when it was up way up there at 10-times book [value] — much more than that. So the opportunities were there for management to take advantage of using the market to support the business, and they didn’t. Well, now of course, the price is way, way, way, down. They probably couldn’t raise five per cent at a flea market. And now they’re having to sell some of their — I don’t know whether they’re gems — but anyway, some of their good assets, to keep going. This is a baffling management.”

All of the above-mentioned portfolio managers do not hold shares of Bombardier either personally or for clients.

Interviews have been edited and condensed for clarity.