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'The dismantling of Bombardier': Company abandons commercial aerospace, eyes focus on private jets as sale of train unit said to loom – Financial Post

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Bombardier Inc. officially abandoned its multi-billion dollar dream to compete in commercial aerospace and is reportedly nearing a deal to sell off its troubled rail division, meaning the business jet division could soon be all that’s left of the storied Quebec plane and train manufacturer that’s shedding assets to pay off debt.

The Montreal-based company announced Thursday it sold its remaining stake in the A220 program to Airbus SE for about $600 million in cash, letting it off the hook for $700 million in future spending on the program. The company will take a $1.6-billion charge on the jet program.

Airbus has promised to keep the program’s 3,300 jobs in Quebec. The provincial government will increase its stake to 25 per cent from 16 per cent in the venture with no cash.

The Bombardier stock, which had been rallying over the past week on news of asset sales, was volatile on the Toronto Stock Exchange as investors digested the latest effort by management to jettison parts of the business in what is the final year of a five-year turnaround strategy.

“I’m actually very confused about what the strategy of the company is,” Goldman Sachs analyst Noah Poponak said during the company’s conference call with analysts after it announced its quarterly results. “It’s starting to look like an asset liquidation more than a turnaround. Has this always been the plan?”

Chief executive officer Alain Bellemare responded that the commercial aerospace business “was a cash drain,” insisting an exit from the program was always part of his turnaround plan. “The strategy was always to exit commercial aircraft and we’ve done that very successfully, while protecting jobs.”

It’s starting to look like an asset liquidation more than a turnaround

Goldman Sachs analyst Noah Poponak

The $6-billion commercial jetliner program, once seen as a moonshot to compete against giants Boeing Co. and Airbus with the help of government loans, was beset with delays and cost overruns. Bombardier, which required government bailouts in recent years as it struggled to fund the program, finally sold a majority stake to Airbus in 2017 for one Canadian dollar, partly to avert a potentially devastating trade challenge from Boeing.

Over the past year, Bombardier has ditched its turboprop, regional jet and aerostructures businesses for total proceeds of about $1.6 billion (including the A220) as it works to repay upwards of $9 billion in debt.

Despite the financial cushion from the commercial aviation sales and guidance that the company will have a positive cash flow in 2020, Bellemare repeated that Bombardier is still exploring options to pay off debt faster. But the CEO wouldn’t reveal what’s next on the chopping block, current discussions or timing of a sale.

“We have options. We are going to continue looking at our options to see if there’s ways we can accelerate the deleveraging phase of the turnaround,” he said.

Bombardier CEO Alain Bellemare with the company's Global 7500 plane in December.

Bombardier CEO Alain Bellemare with the company’s Global 7500 plane in December.

Peter J. Thompson/National Post files

Bombardier is seeking to reduce its debt to about $4 billion by the end of this year, chief financial officer John Di Bert said on the conference call.

With positive free cash flow and the A220 divestiture, there are some positive elements for this “show me” story, Stephen Trent and Brian Roberts, analysts at Citigroup Global Markets, said.

“Assuming that this smaller company now generates cash, it remains to be seen whether Bombardier further monetizes its remaining businesses, a potential positive catalyst — and a $52.1-billion firm order book might be a good place to start the conversation,” the analysts said.

Bombardier’s two largest divisions left standing are rail and business jets.

The company is in talks to sell its rail division to France’s Alstom SA, with Bloomberg reporting a deal could come as early as this week, and its business jet unit to U.S.-based Cessna maker Textron Inc., according to the Wall Street Journal.

Bellemare’s remarks hinted Bombardier is more bullish on aviation.

“Our future in aerospace is with our industry-leading business jet franchise and we see tremendous opportunities,” he said.

Our future in aerospace is with our industry-leading business jet franchise and we see tremendous opportunities

Alain Bellemare

As for the transportation division, he stated Bombardier is “focused on completing the transformation.”

The smaller business jet division has flown under the radar during Bombardier’s five-year turnaround strategy compared to rail and commercial aviation.

The company sees 35-40 deliveries of its flagship Global 7500 business jet in 2020, which list for $73 million each.

BMO Capital Markets analyst Fadi Chamoun questioned whether the business aircraft division “can survive longer-term as a standalone” given the cyclical nature of the business.

Bellemare didn’t comment on going solo, but said Bombardier has the “best business aircraft in the world.”

“This is a very good business and we’re very excited by this business,” he said.

The company’s private jet business is smaller than its rail division, with revenue of $7.5 billion last year compared to $8.2 billion and an order backlog of $14.4 billion versus $35.8 billion for trains. The aviation division employs roughly 24,000 people versus 36,000 at the rail division, according to Bombardier’s annual report.

But aviation’s adjusted profit margin for 2019 was 10.8 per cent compared to 2.6 per cent for the rail division, which has been plagued by delayed deliveries and malfunctions of a handful of problem contracts.

The challenging rail projects, including in New York where officials have accused Bombardier of selling it a lemon, have captured more attention than business jets given public backlash from both transit users, including in Toronto.

A Bombardier train at a warehouse in the U.K.

A Bombardier train at a warehouse in the U.K.

Simon Dawson/Bloomberg files

While the business jet division is a popular brand with the global elite, the Canadian public has been more consumed with A220 news given the government loans that floated the program.

Airbus Canada Ltd. chief executive Philippe Balducchi said in an interview that Airbus is committed to keeping the program in Quebec as it ramps up production. Since Airbus took control in July 2018, orders for the plane have been rolling in and Airbus hired 700 additional workers to keep up with demand.

“There is a lot of recognition round this as a company about what has been done by Bombardier in the past and lots of recognition of the talent that exists in Quebec,” he said. “The idea is not to kill it and bring it somewhere else. We’re ready to grow.”

Quebec, which acquired half of the program in 2015 for $1 billion, said it would not invest further in the joint venture.

Economy Minister Pierre Fitzgibbon conceded Quebec’s investment in the A220  — originally valued at $1.3 billion in Canadian funds — is now worth far less, adding that the government is creating a contingency fund of about $600 million to cover the shortfall. By the time Quebec exits the A220, “I am confident we will get our money back,” he said.

For Québec solidaire MNA Vincent Marissal, the A220 transaction spells the end of Bombardier as it was.

“It’s not a great day for Quebec,” Marissal told reporters. “There’s nothing to crow about.”

What we have today is the dismantling of Bombardier

interim Liberal leader Pierre Arcand

Interim Liberal leader Pierre Arcand went further, saying: “What we have today is the dismantling of Bombardier.”

On Thursday, Bombardier also forecast a 2020 adjusted earnings before interest, taxes, depreciation, and amortization margin of 7 per cent, missing analyst expectations for an EBITDA margin of more than 8 per cent.

The company’s loss before interest and taxes was $1.70 billion in the fourth quarter ended Dec. 31, compared to a profit of $342 million a year earlier, partly due to charges related to some rail contracts in Europe.

With files from Frédéric Tomesco, Bloomberg and Thomson Reuters

Financial Post

• Email: ejackson@nationalpost.com | Twitter:

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Victoria is the only property market in Canada still flashing high vulnerability – Financial Post

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Victoria is the only real estate market in the country still showing high vulnerability, but the overall risk of a housing crash in the country remains moderate, according to the Canada Mortgage and Housing Corporation.

“The evidence of overvaluation remains low as housing prices remain close to the levels supported by housing market fundamentals,” Bob Dugan, the CMHC’s chief economist told media as the agency released its latest quarterly report Thursday.

The Canadian Real Estate Association’s home price index rose 0.8 per cent in January compared to December, marking its eighth consecutive monthly gain. The benchmark index is now up 5.5 per cent from last year’s lowest point in May, CREA said in a report last week.

Victoria, capital of British Columbia, “continues to show a high degree of overall vulnerability,” but CMHC added that the imbalances are easing.

“Moderate evidence remains for overvaluation, however, declining inflation-adjusted home prices combined with growing personal disposable income and population have further narrowed the imbalances between observed and fundamental prices in the third quarter of 2019.”

Average Victoria home prices rose 1.4 per cent in January to $858,500, compared to the same period last year, according to the Victoria Real Estate Board.

Vancouver, another major real estate market that has seen sky-high prices in recent years, is also showing signs of easing, amid government tightening.

In Toronto price acceleration and overheating indicators are currently below their critical thresholds, but “market activity continues to rise, displayed by the sales-to-new listings ratio trending towards a sellers’ market and the accompanying stronger price growth,” the CMHC said.

In fact, the risks in the Toronto housing market remained moderate for the second quarter in a row, after being consistently classified as high risk for the previous three years. But Dugan cautioned that overheating and price increases remained a concern to watch for.

Earlier this week, the federal government said it is setting up a new benchmark interest rate for determining if people qualify for an insured mortgage using actual borrowing costs rather than advertised rates. Home buyers will need to qualify at the contract rate or a new benchmark based on 5-year fixed insured mortgage rates, plus 2 percentage points in both cases, the government said Tuesday. Those changes come into effect April 6.

Dugan said the corporation is aware of the possible impact of the federal government’s recent changes to mortgage stress tests and is watching the situation closely.

“It’s something that we’ll obviously monitor,” Dugan said. “The adjusted stress test for mortgages remains an important measure to ensure that Canadians, especially first-time home buyers, take on mortgages that they can afford.”

Markets in Quebec and Atlantic Canada were also considered low-risk, but the report said there was some froth on new construction in Montreal and Moncton.

The risk of a housing crash in the Prairies also remains low, CMHC said. Most markets in the three western provinces saw vacancy rates fall or stay flat, said Dugan, easing the regulator’s concerns about a possible oversupply of new construction.

“The rental market vacancy rates remain below critical thresholds,” Dugan said.

The only market in the west where CMHC kept its moderate risk assessment was Regina, where the vacancy rate for rental apartments is 7.8 per cent, a level which raised the CMHC’s concerns about oversupply.

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Police deliver injunction to demonstrators blocking rail tracks in Saint-Lambert – CTV News

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MONTREAL —
Police have served protesters blocking rail tracks south of Montreal, in St-Lambert, with an injunction demanding they dismantle their barricades.

CN police just before 7 p.m. on Thursday approached the barricades with a box full of paper, delivering copies of the injunction to the protesters. Officers said they would give the protesters time to read it. It was unclear as of Thursday evening if police would move in against them.

Longueuil Police had tweeted just before 7 p.m., warning motorists to stay away from the area to allow the demonstrators to leave. 

The protesters, however, showed no signs of leaving.

Canadian National earlier had obtained the injunction to end the blockade of its railway line in Saint-Lambert that had snarled commuter rail traffic to Mont-St-Hilaire and Via Rail service to Quebec City.

Quebec Premier François Legault had said that the barricade would be dismantled by municipal police on the South Shore when the injunction was issued. Longueuil police had asked for the Surete du Quebec’s assistance to remove the barricades, should officers attempt to intervene.

Early Thursday afternoon the protesters were reluctant to speak to the media, though some locals had engaged with them. “I support you, but it’s enough,” St-Lambert resident David Skitt told the protesters, urging them to get off the tracks. After his conversation, where he expressed his frustration with their methods, he shook hands with one of the demonstrators and left.

Temperatures overnight Thursday were predicted to dip as low as -16 C with a windchill of -22 C, according to Environment Canada. The demonstrators had lit a fire inside of a tent and asked their supporters for wood, supplies and blankets.

The blockade of the railway line by supporters of Wet’suwet’en hereditary chiefs has delayed the planned resumption of Via Rail service between Montreal and Quebec City. Service on the busy corridor was set to resume Thursday, but Via Rail announced that the resumption has been postponed until at least the end of the day Friday. The new blockade gave Via Rail “no other option” to push back the resumption of service, the company said in a statement.

Service between Montreal and Ottawa is scheduled to resume Saturday. Service on the complete Windsor-Quebec City corridor is currently expected to resume Sunday.

On Wednesday, Via Rail announced that it was temporarily laying off some 1,000 employees due to the impact of blockades across the country.

Blockades of railway lines across the country have caused widespread passenger and cargo train delays and cancellations.

The blockades are being set up in solidarity with the hereditary chiefs of Wet’suwet’en First Nation of northern British Columbia, who are opposing the construction of a new pipeline through their territory.

– With reporting by The Canadian Press.

This is a developing story that will be updated.

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Asian shares perk up as investors look beyond Apple virus warning – Aljazeera.com

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Asian shares and United States stock futures edged up cautiously on Wednesday, as investors tried to shake off worries about the coronavirus epidemic and look beyond the short-term hit to corporate earnings.

Chinese blue chip shares erased early declines to trade 0.52 percent higher. Australian shares were up 0.29 percent, while Japan‘s Nikkei stock index rose 0.81 percent.

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MSCI’s broadest index of Asia Pacific shares outside Japan spent much of the morning session bouncing between gains and losses, losing 1.08 percent by midday.

China, the world’s second-largest economy, is still struggling to get its manufacturing sector back online after imposing severe travel restrictions to contain a virus that emerged in the central Chinese province of Hubei late last year.

On Tuesday, Apple Inc announced that it was unlikely to meet its sales guidance because of the virus outbreak, spooking investors and denting stock prices.

But investors are optimistic that officials will roll out more stimulus to support the world’s second-largest economy.

“Apple’s announcement was a bit of a shock, but … what’s more important is that central banks are going to provide quite a bit of stimulus,” Stephen Innes, Asia Pacific market strategist at AxiTrader told Al Jazeera.

“We know there’s going to be a slide in earnings, we know those ramifications,” he said, adding that these were expected short-term outcomes, but earnings could recover in the medium to long term. “Central banks will buttress short-term downside with a lot of liquidity.”

The People’s Bank of China cut the interest rate on its medium-term lending facility on Monday, which is expected to pave the way for a reduction in the country’s benchmark loan prime rate on Thursday, as policymakers try to ease the financial strains caused by the virus.

“Part of the thinking that is supporting markets is the actions that China takes to support its economy,” Michael McCarthy, chief market strategist at CMC Markets in Sydney told Reuters. “Any investor concern around impact on demand globally from the virus will be offset by expectations that global central banks will ride to the rescue.”

US stock futures rose 0.18 percent in Asia on Wednesday but the Treasury curve remained inverted as yields on three-month bills traded above those on 10-year notes, in a sign that some investors remain cautious about the outlook.

A yield curve inverts when short-term yields trade above long-term yields, and is often considered a sign of recession in the next year or two.

In the currency market, the euro languished at a three-year low versus the US dollar as disappointing data from Germany, Europe‘s largest economy, has stoked fears that the eurozone is more vulnerable to external shocks than previously thought.

The euro was quoted at $1.0804, still close to its lowest since April 2017.

Mainland China had 1,749 new confirmed cases of coronavirus infections on Tuesday, the country’s National Health Commission said on Wednesday, down from 1,886 cases a day earlier and the lowest since January 29.

The death toll in China has topped more than 2,000 from the flu-like illness which has already spread to 24 other countries.

In China’s onshore market, the yuan briefly fell to a two-week low of 7.0136 per US dollar as traders continued to ponder the economic impact of the virus and the chance for more monetary easing.

The price of US crude oil rose 0.21 percent to $52.16 a barrel, while Brent crude rose 0.12 percent to $57.87 per barrel as a reduction in supply from Libya offset concerns about weaker Chinese demand for commodities.

Expectations that the Organization of the Petroleum Exporting Countries (OPEC) and allied producers including Russia will cut output further should lend support to prices.

The group, known as OPEC+, will meet in Vienna on March 6.

SOURCE:
Al Jazeera and news agencies

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