Canadians on the Hook to Save Bombardier Stock
CA$55.55 is the amount that every income tax–paying Canadian will contribute to Bombardier, Inc. (TSX:BBD.B) if the federal government decided to approve a CA$1.0-billion bailout to save the embattled plane and train maker—a step that may bring a little bit of hope to the heartbreaking Bombardier stock.
The $55.55 a head is an estimate made by William Watson, a Montreal-born and -raised economist, in his weekly column published in the Financial Post on Tuesday. (Source: “William Watson: The bill we’ll all pay for Bombardier’s latest bailout,” The Financial Post, February 16, 2016.)
Watson divided the $1.0 billion among the 18 million who pay income taxes, noting that there are 33 million Canadians, of whom 27 million file taxes, but nine million don’t actually pay any tax.
“With your $55.55 that the federal government is weighing giving to Bombardier, you could buy 69 shares of Bombardier stock,” Watson wrote. “Which would you rather have at the moment? $55.55 or 69 shares of Bombardier stock?”
Watson indicated that Bombardier stock is currently selling for $0.81 after reaching $26.00 some 15 years ago.
Bombardier recently received a helping hand from cash infusions from the Quebec pension fund, Caisse de Dépôt et Placement du Québec, and the Quebec provincial government. In October, Quebec agreed to invest $1.0 billion in Bombardier’s $5.4-billion “C Series” program, while Caisse de Dépôt bought 30% of the company’s rail unit for $1.5 billion.
Justin Trudeau’s federal Liberal government is reluctant to move to invest in the ill-fated C Series program. Last week, Stefanie Power, a spokeswoman for the Federal Innovation, Science, and Economic Development Department, told The Globe and Mail that “there has to be a strong business case for making a federal investment. Any assistance would have to be in the best interest of all Canadians.”
William Watson’s column was published on the eve of the company’s release of its fourth-quarter earnings, which brought in some hope and some hopelessness.
Revenue fell 16% to $5.02 billion in the October–December quarter, the Montreal-based company said in a statement Wednesday morning, lagging behind analysts’ $5.51 billion. (Source: “Bombardier Announces Financial Results for the Fourth Quarter and the Year Ended December 31, 2015,” Yahoo! Finance, February 17, 2016.)
Profit dropped as the company broke even on a per-share basis, below the $0.02 consensus.
Bombardier also forecast lower revenue for this year, saying it expects to generate between $16.5 billion and $17.5 billion.
To overcome cost overruns, on Wednesday, Bombardier said it is cutting about 7,000 jobs, or 11% from its workforce of about 64,000.
“Throughout 2016 and 2017, we will adapt our global manpower to current market conditions, while hiring to support growing segments, such as the C Series,” said Chief Executive Officer Alain Bellemare, who took over a year ago with a mandate to restore profitability.
Bombardier also announced a reverse stock split plan to prop up the sinking stock to an initial post-consolidation share price in the range of $10.00 to $20.00 per share.
The stock closed up 11.1% at $0.90 on Tuesday, giving the company a market value of $2.3 billion.
Also on Wednesday, Bombardier said it signed a letter of intent with Air Canada (TSE:AC) to sell 45 of Bombardier’s “CS300” aircraft with options for an additional 30 planes. Based on the list price of the CS300, Bombardier said a firm order would be worth about $3.8 billion.
“If there were any chance of Bombardier recovering, wouldn’t some enterprising bank, billionaire or hedge fund be eager to take a (ahem) flyer on it?” Watson wondered in his column.
“The governments will argue that Bombardier offers Canadians much more than financial benefits,” he noted. “We get pride from being a player in the world airplane market—though if our planes don’t actually sell, maybe the pride is reduced.”