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Bombardier back to the brink after rethinking Airbus A220 deal – BNNBloomberg.ca

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Bombardier Inc.’s deal with Airbus SE to rescue its long-delayed and over-budget jetliner program was supposed to be a lifeline for the struggling manufacturer. Now the Canadian company is rethinking the joint venture, pushing the iconic train and plane maker to the brink once more.

The shares posted their biggest loss ever — Bombardier is almost a penny stock again — and bonds tumbled after the company said it was reassessing the A220 jet program with Airbus. Costs for the new plane are rising, and the goal of breaking even may come later than expected, likely prompting a writedown when Bombardier reports earnings next month.

“The joke continues,” said John O’Connell, chief executive officer of Toronto-based Davis Rea Ltd. “This company has been a disaster my whole career and I’m almost ready to retire.”

The possible retreat from the A220 program, formerly known as the C Series, could be another blow to Bombardier’s efforts to increase cash flow to help pay down its US$10 billion debt load. The company has already sold assets in recent years to tackle its debt, including pending deal for its CRJ jet unit with Mitsubishi Heavy Industries Ltd.

The C Series was originally pitched as a major breakthrough for Bombardier, providing a plane that was bigger than its traditional jets yet generally smaller than Airbus’s workhorse A320-family jets and Boeing Co.’s 737 planes. Yet program delays and cost overruns sent the investment soaring to US$6 billion, raising concerns about the debt, now rated six levels below investment grade.

Bombardier needs to ‘just deliver’ what they promise: McGill’s Karl Moore

Karl Moore, professor of business strategy at McGill University, joins BNN Bloomberg to react to Bombardier slashing its outlook, warning on cash burn and considering pulling out of the A220 partnership with Airbus. He says that CEO Alain Bellemare has done an excellent job in a tough turnaround for the business.

Job Cuts

The delays and slow sales forced Bombardier to announce thousands of jobs cuts in 2016, with doubts over the future of the company pushing the stock to as low as 72 cents. The government of Quebec was forced to step in, investing US$1 billion for a 49 per cent stake in the C Series.

On Thursday, Bombardier tumbled anew, dropping 32 per cent to $1.22 at the close in Toronto. The shares are now at the lowest level in almost four years and the company’s market value is only about $3 billion (US$2.3 billion)..

The deal with Airbus was an elegant solution. Though Bombardier received no upfront cash for ceding its controlling stake, it allowed Bombardier to offload the risk and additional costs of developing the A220. But the latest financial plan calls for more cash to support the ramp-up, pushes out the break-even timeline, and generates a lower return over the life of the program, Bombardier said in a statement Thursday.

With few other assets left to sell, Bombardier may struggle to keep everything going. One of its two remaining businesses — rail equipment and private jets — may have to go, Karl Moore, an associate professor at McGill University in Montreal, said in an interview with BNN Bloomberg.

“Then you become a pure play of either transportation on the train side, or business jets,” he said. “It’s a big dramatic move for sure but one that might be necessary to solve the cash flow issue. I think that’s the question they’re giving some serious thought to right now.”

The potential end of Bombardier’s involvement in the A220 program is combining with continued woes in the company’s rail business to undermine a once-great name in manufacturing.

The company said fourth-quarter sales would be US$4.2 billion, trailing the lowest analyst estimate in a survey by Bloomberg. The results were dragged down in part by new challenges in the company’s rail division. Bombardier said it would take a US$350 million accounting charge because of problems in London, Switzerland and Germany.

Liquidity remains strong, with year-end cash on hand of roughly US$2.6 billion, Bombardier said. But the company is considering alternatives to accelerate its deleveraging and strengthen its balance sheet.

Bonds Resilient

“The final step in our turnaround is to de-lever and solve our capital structure,” Chief Executive Officer Alain Bellemare said in the statement. “We are actively pursuing alternatives that would allow us to accelerate our debt paydown.”

For Mark Carpani, a partner at Ridgewood Capital Asset Management, a larger selloff on the bonds could be a buying opportunity.

“Despite the equity reaction, the debt has a high probability of being paid in the short term,” he said.

The company’s 7.85 per cent bonds due 2027 fell 6.8 cents, the most on record but remain well above distressed levels at 95.3 cents on the dollar, yielding 8.8 per cent, according to Trace data. The US$1.5 billion in notes due 2025 dropped 5.7 cents to 96.3 cents on the dollar to yield 8.4 per cent, the highest since Oct. 31.

The company is scheduled to report full earnings Feb. 13.

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Commercial-Jet Retreat

Airbus said it would continue funding the A220 program “on its way to break-even.” The European aerospace giant owns a 50.01 per cent stake in the regional jet, with Bombardier retaining 31 per cent and state-backed Investissement Quebec holding some 19 per cent.

Bombardier agreed to fund cash shortfalls for the program up to a maximum of $350 million in 2019, and $350 million cumulatively in 2020 and 2021, according to a press release announcing the venture in June 2018. Any excess shortfalls would be shared by the shareholders, the statement said.

Quebec’s economy and innovation minister declined to comment, according to a representative.

The jet added 63 orders in 2019, with 105 currently in service and a backlog of close to 500 planes. Airbus will begin producing the A220 on a second assembly line this year at its factory in Mobile, Alabama.

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Despite Lunch with Sun, Buffett Still Denies Bitcoin's Legitimacy – Crypto Briefing

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Warren Buffett remains skeptical about cryptocurrencies despite on-chain analytics revealing parabolic growth and industry leaders’ best attempts.

Cryptocurrencies Have “Zero” Value, Says Buffett

Justin Sun, the CEO of TRON and BitTorrent, spent $4.6 million in a charity auction to have lunch with the head of Berkshire Hathaway, Warren Buffett. 

The main idea behind winning the charity auction was to persuade the legendary investor to reconsider his bearish take on cryptocurrencies. 

During the meal, Sun reportedly gave Buffett his first Bitcoin and a smartphone with over 1.9 million TRON tokens, as well as other digital assets, including BitTorrent, WINK, and USDT-TRC20—all projects on the TRON blockchain. 

Despite the massive sum of money that Sun spent, it now appears that the effort was in vain. 

In a recent interview with CNBC, Buffett described the meet up as a “very friendly exchange of ideas.” Buffett explained that Sun was not able to change his perception and affirmed that “cryptocurrencies basically have no value.” 

“Cryptocurrencies do not produce anything. You can look at your little ledger item for the next 20 years and it says that you have X of this cryptocurrency, or that. It does not reproduce, it does not deliver, it cannot mail you a check, it cannot do anything. And, what you hope is that somebody else comes along and pays you more money for it later on, but then that person has the problem. But, in terms of value, you know zero,” said Buffett. 

The American business magnate also denied owning any cryptocurrency when asked multiple times about the tokens that Sun gave him and asserted that he will never own any. According to Buffett, cryptocurrencies were invented to make it easier to “move around a fair amount of money illegally.” 

Although the sage of Omaha remains skeptical about the future of cryptocurrencies, there are others who seem overwhelmingly bullish. 

Mass Adoption Is Happening “Now” 

On-chain analyst Willy Woo, recently stated that Bitcoin is going through exponential growth.

Due to human nature’s instinct to look at “things in a linear stance,” it is difficult to understand what the flagship cryptocurrency is doing outside of this perspective.

“If you were to look at where we are on the adoption curve, we are at 1% of the world population holding this asset class. And, if you look at the rate in which that is growing, which is 2x every year… and 4x on a bull market. If you run those numbers, we are going to have half of the world using [cryptocurrencies] within the next seven years,” said Woo. 

While it is unknown what the future holds for cryptocurrencies, Woo maintains that mass adoption is happening now based on on-chain data. Only time will tell whether cryptos will triumph or fail as a speculative bubble. 

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Coronavirus roils global markets, putting rate cuts back on the radar

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Mounting concerns over the spread of coronavirus outside China sent global markets into a panic Monday and some economists are warning the prospect of a pandemic could push the Bank of Canada and the U.S. Federal Reserve to consider cutting interest rates sooner rather than later.

“It is reasonable to assume that coronavirus is going to last longer given the infection rate is higher than SARS and is still climbing. That itself, might convince the Bank of Canada and even the U.S. Fed to cut interest rates. I wouldn’t be surprised,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets. “This is just the beginning of coronavirus, and there is a consensus starting to be generated that maybe, it will last longer than expected.”

Stock markets began the week in turmoil as a surge in the number of coronavirus cases was reported outside China — specifically in South Korea, Iran and Italy — just days after G20 officials warned that the ongoing outbreak would have a detrimental effect on global growth if not contained soon.

The Dow Jones Industrial Average plunged 1,031 points, or 3.56 per cent on Monday, while the S&P 500 fell by 3.3 per cent, the steepest drop since August. The tech-heavy Nasdaq was hit even harder, losing 3.71 per cent to close Monday at just over 9,200 points.

Canadian markets felt the pinch too, with the TSX dropping by 1.5 per cent or approximately 280 points, ending the trading day at 17,562 points. The VIX, a measure of stock market volatility surged by 35 per cent.

The price of gold, meanwhile, soared by 2.6 per cent, reaching a seven-year high while the 10-year Treasury yield plunged to its lowest level in almost four years as investors sought out traditional safe havens to weather the uncertainty.

Oil prices tumbled by as much as four per cent on concerns over stalling global demand, as energy traders began to price in the notion that the virus could last longer than previously thought.

“The virus spread comes at a time when companies are already facing significant inventory restocking and a stalling in global manufacturing following the application of tariffs and overall trade tension,” said Frances Donald, chief economist at Manulife Investment Management. “Coronavirus is adding salt to the wound.”

Like Tal, Donald believes that the Bank of Canada will seriously contemplate a rate cut.

“I have a lot of trouble believing that the central bank is not very concerned at this point about what the first half of 2020’s economy looks like for Canada,” she said.

Worries over coronavirus morphing into a global pandemic began to flare up late last week, as the number of infections in South Korea surged fivefold to over 800 while authorities in both Italy and Iran reported tens of new cases and almost 20 deaths. Italy is now the epicenter of the biggest coronavirus outbreak outside Asia, as officials still struggle to track down how the virus first entered the country.

The number of cases in North America, however, remains much lower, with just nine in Canada and 53 in the U.S. — 18 of which were discovered on Monday.

Markets reacted negatively to the virus when it first came to light almost a month ago, but then recovered, signalling a dismissal of the potential for a wider economic impact.

“What I find fascinating is that up until last week, the U.S. consensus had not changed one iota on coronavirus concerns,” said Douglas Porter, chief economist at BMO Financial Group. “I wonder if that might start to shift a little bit in the next few weeks,” he added.

Porter remained cautious on the idea that the U.S. Fed would ease rates, saying that it would take a “major shock like a massive, wide outbreak of the virus” to get them to shift gears.

“I can see a scenario where the Bank of Canada cuts rates, and the Fed doesn’t because the Bank has basically told us they are biased to ease, if need be, but the Fed hasn’t indicated that,” he said.

Because of how large the Chinese economy is, the impact of a coronavirus-related slowdown on Canada would come from both the supply side (Canadian companies depending on Chinese goods) and the demand side (exports of our commodities to the Chinese market), says Donald.

“But the supply side component of this is so much worse than in 2003, with SARS, because global supply chains are significantly more complex. In today’s environment, we are relying on China for intermediary goods — for example automakers rely on parts made in China,” she said.

“So the biggest challenge from a policymaker’s point of view is how much of the loss we might experience over the next few months is going to be recouped over the next year,” Donald added.

On Sunday, China confirmed 150 new deaths, pushing its national death toll to almost 2,600.

The outbreak has also caused widespread travel chaos, with Turkey, Pakistan, Armenia and Oman closing their borders with Iran on Monday, citing the surge in the number of cases there. Hong Kong too, closed its doors to all arrivals from South Korea over the weekend.

Airline stocks in particular took a hit on Monday, with American Airlines dropping just over eight per cent and Air Canada’s stock declining five per cent, as the company continued to restrict the number of flights between Canada and China.

“The direct damage to global economies is still limited, but there’s potential for much more which is basically what the market is reacting to,” said Porter.

”But frankly, no one can really know at this point, because if you think about it, it has really only been a month (since) this first emerged as an issue.”

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Kenney announces new law clamping down on protestors – Edmonton Journal

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On the eve of the Throne Speech and in the wake of Teck’s decision to pull out of its Frontier Mine project, Premier Jason Kenney announced legislation targeting protesters who disrupt vital infrastructure networks.

Kenney blamed Teck’s withdrawal on Sunday in part on the “appearance of anarchy” caused by nationwide protests in support of Wet’suwet’en heridetary chiefs who are opposed to the CoastalGas Link project in northern B.C.

“This decision was taken in large part because of regulatory uncertainty and endless delays created by the national government, as well as the general atmosphere of lawlessness that we have seen take hold of parts of our country and much of our economic infrastructure in the past three weeks,” said Kenney in a speech to caucus, government staff, invitees and media on Monday.

The first bill of the spring session will be the Critical Infrastructure Defense Act, creating new “stiff penalties for anyone who riots on or seeks to impair critical economic infrastructure,” Kenney said.

The government will table the legislation, otherwise known as Bill 1, on Tuesday.

Kenney said he had spoken to “major” investors who have cancelled, frozen and suspended major investments in the economy because of the rail blockades.

The Court of Queen’s Bench granted a province-wide, 30-day injunction last week after protesters blocked CN tracks east of Edmonton. Police can be called to serve and enforce that order. In Ontario, police enforced an injunction Monday, dismantling the blockade near Belleville, Ont., that began on Feb. 6 and halted freight and passenger rail service across much of the country.

Kenney targeted “urban green left zealots,” saying they were trying to appropriate protests and condemning Indigenous people to poverty. The Coastal GasLink project, which is supported by all 20 elected First Nation chiefs along the pipeline’s route, is expected to create 2,000 to 2,500 jobs during its four-year construction period.

Kenney also promised a “citizen-initiative” referendum law in the coming days that will allow citizens to put issues that are important to them on the ballot, although he added that the government would prevent frivolous abuse of the process.

Although Teck CEO Don Lindsay criticized the lack of a regulatory framework and cited investor uncertainty in his letter to the federal government Sunday, Kenney said the province can reconcile a potential referendum over national unity issues.

“When I talk about tensions on national unity, I’m not advocating that, I’m describing a reality that exists in this province and other parts of Canada. And I think it would be grossly irresponsible for political leaders to ignore that reality,” he said.

The Bill 1 announcement came on the heels of the Alberta Court of Appeal’s decision Monday afternoon, which ruled in favour of Alberta’s legal challenge and declared the federal carbon tax unconstitutional.

When asked how killing the carbon tax would make investing in Canada more attractive to companies like Teck, Kenney said the province’s Technology Innovation and Emissions Reduction (TIER) Regulation is a better solution than the federal carbon tax because it focuses on big emitters and scientific solutions.

He also reiterated that Teck did not flag environmental frameworks as a problem until its decision was made public on Sunday.

‘Let’s resolve those issues’: Mikisew Chief

Chief Archie Waquan of the Mikisew First Nation, who had announced the community’s support for the Teck project on Friday, said he was disappointed in the company’s decision on Monday.

“I feel badly about it,” he said, noting that it took 10 years of work to come to an agreement.

Hurting the economy is not the best way to protest, but clamping down on protestors might be “too strong” of an approach, he said, adding that talking with Indigenous communities is the only way to practical solutions.

“Let’s resolve those issues that are affecting First Nations — let’s get it going — and then you’ll never have any of those blockades in the future,” he said.


NDP Leader, Rachel Notley, answers question about Teck’s application withdraw from the Frontier oilsands mine during a news conference on costs being downloaded onto municipalities by the government, with NDP Municipal Affairs Critic, Joe Ceci (back) in Edmonton, February 24, 2020. Ed Kaiser/Postmedia

‘He’s scrambling’: Notley

Opposition NDP leader Rachel Notley said Monday that Teck’s decision is the direct result of Premier Jason Kenney’s “combative” political approach.

International investors are looking for a predictable regulatory framework on greenhouse gas emissions, but instead are seeing Kenney demonize anyone with any concerns about climate change, alienating investors and leaving Albertans behind, Notley said.

The blockades are the result of longstanding matters that need to be addressed across the country, and confounding the issue of protests, emissions regulation and investment is dishonest, she said.

“He’s scrambling, and it’s cheap issues management,” said Notley.

Kenney has fought against the environmental frameworks that investors want and mischaracterized international banking heads and fund managers as “urban green radicals,” she said.

“He is essentially promoting the continued investor uncertainty that created this problem in the first place,” she said.

It is already illegal to blockade railways, and police have the jurisdiction to arrest trespassers, she said when asked about how effective Kenney’s upcoming first bill will be.

“It comes down to what the deterrent element is, and how it’s constructed,” she said.

lijohnson@postmedia.com

twitter.com/reportrix

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