MONTREAL— Bombardier, the supplier of Toronto’s signature streetcars and subways, has reached a US$8.2-billion deal to sell its rail business to French train giant Alstom SA. Both the TTC and Metrolinx say the sale won’t immediately impact their operations.
The company is narrowing its focus to commit itself solely to business jets while casting off its largest division, in part to help pay down US$9.3 billion in debt.
“Going forward, we will focus all our capital, energy and resources on accelerating growth and driving margin expansion in our market-leading US$7 billion business aircraft franchise,” CEO Alain Bellemare said in a statement Monday.
The news comes only weeks after the TTC took delivery of the last of 204 new Bombardier streetcars. All the maintenance of those vehicles is done in-house at the TTC, said transit spokesperson Stuart Green.
The $1.25 billion streetcar order was believed to be the biggest in the world when it was announced in 2009. But the 11 intervening years were an especially problematic chapter in the city’s long transit history with Bombardier.
The first two cars arrived in Toronto in 2014. But a series of manufacturing defects and missed delivery targets caused tempers to flare at the TTC and city hall. At one point the first 67 streetcars had to be recalled and repaired. Meantime, the TTC was desperately trying to extend the life of its old CLRV streetcars and run buses to supplement service on routes that desperately needed the new, bigger vehicles.
Toronto’s newest subways, the $1 billion Toronto Rockets, were also made by Bombardier. Ordered in 2006, they proved controversial for former Toronto Mayor David Miller, who defended the sole-source contract because it supported jobs at Bombardier’s Thunder Bay plant. The subways arrived late due to the bankruptcy of Bombardier’s New York door manufacturer but entered service in 2011.
Metrolinx said that “initial indications from Bombardier suggest it is business as usual,” with its order for Bombardier light rail vehicles for the Eglinton Crosstown, GO buses and the operation of GO and Union-Pearson Express trains. Most of GO’s locomotives are built by U.S.-based MotivePower.
The Finch West and Hurontario light rail lines are being furnished by Alstom, said spokesperson Anne Marie Aikins.
“We look forward to continuing with all of our rail delivery partners to bring better transit to the region,” she said.
Toronto transit historian Ed Levy said the sale of Bombardier’s train division is the end of an era that was for decades a happy match between the city and the company.
“They really screwed up on the streetcar thing but not on the very large orders of the subway cars over the years. When they started doing off-shore stuff that’s where their problems began,” he said.
The acquisition also signals an effort by Alstom to scale up amid rising competition from China’s state-owned CRRC, the world’s largest train maker.
The transaction will see the Caisse de depot et placement, which owns a 32.5 per cent stake in Bombardier’s train division, become Alstom’s largest shareholder.
The deal converts the Quebec pension giant’s investment in Bombardier Transportation into Alstom shares, handing the Caisse about 18 per cent of the Paris-based company with an investment of up to $4 billion, depending on closing conditions. The transaction includes an additional Caisse investment of $1 billion.
Bombardier said net proceeds from the deal will be between US$4.2 billion and US$4.5 billion after deducting the Caisse’s equity position of roughly US$2.2 billion, as well as adjustments for debts and other liabilities.
The deal is expected to close in the first half of 2021 if it can move through regulatory hurdles.
Alstom’s purchase is expected to come under intense scrutiny from antitrust regulators in the European Union. Last year, EU authorities blocked a proposed merger between Alstom and the train division of German industrial conglomerate Siemens AG, arguing the proposed tie-up would result in higher price tags on signalling systems and bullet trains.
Montreal-based Bombardier has sold several divisions since Bellemare took the helm in 2015, including its turboprop and aerostructure segments as well as its commercial airline unit, once touted as the company’s crown jewel.
Bombardier announced last month it was working to reduce debt and pursuing strategic options, which analysts and other observers suggested could include the sale of the company’s rail or business jet units.
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Bombardier shares have fallen about 70 per cent since July 2018 while Alstom’s have risen by more than 50 per cent over the past two years, including 3.5 per cent Monday.
The announcement was made after the Paris Stock Exchange closed Monday. The Toronto Stock Exchange was closed for Family Day.
The new deal and other recent transactions will leave Bombardier with between US$6.5 and US$7 billion of cash on hand, “putting the company on a brand-new footing” to deal with its sizable debt, Bellemare said.
The company has already ramped up production of high-margin business jets, which it expects will drive double-digit revenue growth with 160 unit sales in 2020 amid a $16.3-billion backlog. But delays and “some volatility” continue to plague several “large, challenging” rail contracts, Bellemare said last Thursday.
While its business jets are now at full production, analysts highlight the cyclical luxury market of private planes in comparison to the relatively stable field of rail car and network construction, which is fuelled by government infrastructure projects.
Nonetheless, hefty production costs and lower margins remain an issue in the rail business, said Jacques Roy, professor of transport management at HEC Montreal business school.
“You can see the fixed costs increasing all the time, because they pretty much have to establish facilities everywhere they sell equipment,” Roy said, pointing to Bombardier’s plant in Plattsburgh, N.Y., which makes trains for U.S. clients.
“If they were a little bit better at this they would be able to compete with the Chinese. They could brag that, ‘Okay, we’re not as cheap as the Chinese, but we produce much better quality, we deliver on time.’ But they don’t. That’s a concern to me,” he said.
The rail and business jet divisions represent Bombardier’s only remaining revenue streams — about 53 per cent and 47 per cent, respectively, of $15.76 billion in revenue last year — after Bombardier sold its waterbomber unit, Q400 turboprop business, CRJ regional jet program and flight-training enterprise over the past four years.
And last week, Bombardier announced the sale of its remaining stake in the A220 commercial jetliner program — formerly known as the C Series — as it reported quarterly results last Thursday, marking the end of its failed bid to take on the commercial aircraft duopoly of Airbus SE and Boeing Co.
Bombardier, founded in Valcourt, Que., in 1942 as a snowmobile manufacturer, now stares down a US$9.32-billion debt load — nearly 60 per cent of it due within five years.
The rail business, Bombardier Transportation, is based in Berlin. In Canada, it employs some 1,000 workers at factories in Quebec’s Bas-St-Laurent region and in St-Bruno-de-Montarville, on Montreal’s South Shore.
TSX down amid oil rout while Wall Street inches up in early trading – Global News
Canada’s main stock index was down in early trading on Monday as the price of oil slid to its lowest level since 2002. In the U.S.. however, stocks opened higher on Monday as President Donald Trump followed last week’s massive fiscal stimulus by extending his stay-at-home guidelines, leaving investors guessing at their economic impact.
In Toronto, Canada’s benchmark S&P/TSX composite index was down 56.86 points at 12,630.88.
In New York, the Dow Jones Industrial Average rose 41.44 points, or 0.19 per cent, at the open to 21,678.22.
Coronavirus outbreak: Kenney calls for coordinated tariffs with U.S. in response to ‘predatory dumping’ of Saudi oil
The S&P 500 opened higher by 17.51 points, or 0.69 per cent, at 2,558.98. The Nasdaq Composite gained 81.08 points, or 1.08 per cent, to 7,583.46 at the opening bell.
On the currency market, the Canadian dollar traded for 70.57 cents US compared with an average of 71.14 cents US on Friday.
The May crude contract was down US$1.37 at US$20.14 per barrel and the May natural gas contract was down 2.3 cents at US$1.65 mmBTU.
The June gold contract was down US$10.80 at US$1,643.30 an ounce and the May copper contract was down 0.65 of a cent at US$2.17 a pound
— With files from the Canadian Press
© 2020 Reuters
Air Canada to temporarily lay off 15000 workers due to COVID-19 fallout – CTV News
Air Canada will temporarily lay off more than 15,000 unionized workers beginning this week as the airline struggles with fallout from the COVID-19 pandemic.
The layoffs will continue through April and May amid drastically reduced flight capacity from the Montreal-based airline.
Air Canada says the two-month furloughs will affect about one-third of management and administrative and support staff, including head office employees, in addition to the front-line workers.
The carrier is also cutting between 85 per cent and 90 per cent of its flights, cancelling most of its international and U.S. routes in response to the global shutdown.
Earlier this month Air Canada’s flight attendant union said 5,149 cabin crew would be temporarily laid off due to the COVID-19 outbreak.
This report by The Canadian Press was first published March 30, 2020.
Two more Canadian banks cut prime rates by 50 basis points – The Globe and Mail
National Bank of Canada and Laurentian Bank of Canada both announced plans Monday to drop their prime rates by 50 basis points to 2.45 per cent. They join the Big 5 banks in decreasing lending rates to match the Bank of Canada’s unscheduled interest rate announcement on Friday.
The new National Bank and Laurentian Bank rates are effective Tuesday. Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia , Bank of Montreal and Canadian Imperial Bank of Commerce all cut their prime rates to 2.45 per cent on Friday, and were effective as of Monday.
The Bank of Canada Friday unexpectedly cut its key interest rate to help the county weather the economic fallout of the coronavirus pandemic.
The Bank of Canada cut its overnight interest rate by 50 basis points to 0.25 per cent, its lowest level since June 2010.
Separately, Canada’s financial regulator eased its capital and liquidity requirements for banks, changed credit loss provisioning and allowed more loans to be securitized.
The pandemic has forced several governments to take actions as businesses grind to a halt and several retailers close stores to curb the spread of the highly-contagious diseases, leaving many people jobless.
This is the third time the big banks have cut prime rates over the past month. The prime rate impacts the cost of borrowing for many financial products, including variable rate mortgages.
Reuters, Globe staff
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