Response to Pierre-Yves McSween: Bombardier Is Heading in the Right Direction


We cannot blame Pierre-Yves McSween for his lack of interest in Bombardier. The company is regularly the subject of his columns, as was the case on January 8 in La Presse+. However, we must underline his slanted view, many speculations and especially his refusal to recognize the progress made by the company since 2015.

In this article, McSween reviews the transaction that allowed Caisse de dépôt et placement du Québec (CDPQ) to acquire 30% of the shares of Bombardier Transportation, our rail transportation business segment, for $1.5 billion US. Ignoring the benefits generated by this partnership since its conclusion in 2016, he describes it as a "marriage of convenience". He also paints a dark portrait of Bombardier's finances, emphasizing its debt while ignoring the progress of its bottom line. Faced with such a tendentious angle, it seemed important for us to offer readers a different perspective.

Let's start with debt. Underlining, as Pierre-Yves McSween does, that Bombardier had more liabilities than assets as of September 30, 2017 is an incomplete assessment of the business. In recent years, Bombardier has invested billions of dollars in the development of new aircraft: the C Series and Global 7000. The first entered into service just a year and a half ago, its production is accelerating gradually and, thanks to the partnership with Airbus, the current value of the program should more than double. As for the second, it is expected to enter service as planned in the second half of 2018 and already has a full order book until 2021. The renewed confidence in the Bombardier stock is partly explained by the mitigation of the risks associated with these two programs and their enormous growth potential. This confidence has resulted in a value creation of more than $4 billion Cdn in two years, for the benefit of all shareholders of the company, large and small.

Another strategy that has contributed to this value creation is the strengthening of the company's liquidity. The transaction with CDPQ was aimed precisely at achieving this objective, while at the same time providing Bombardier with a strong partner to continue growing its transportation business.

This investment in the form of a private placement was achieved through an internationally competitive process. In addition, it is clear that the structure of this investment has benefits for both parties. On the one hand, it offers CDPQ very attractive returns, which are not limited to the minimums to which McSween refers. On the other hand, it allows Bombardier to complete its turnaround plan before having the opportunity to buy back CDPQ's stake in the next few years.

And today, where are we? Bombardier Transportation remains a world leader in the rail transportation industry and has an order backlog of $33 billion US. Its revenues and margins are growing, and this progression should accelerate by 2020. As for Bombardier, the elements are in place to execute its turnaround plan launched in 2015 by Alain Bellemare. The company expects to achieve cash flow breakeven this year, and the improved performance of its Business Aircraft and Transportation segments aims to generate net cash inflows of up to $ 1 billion US for the year 2020.

McSween, who is an accountant, should be able to objectively testify to Bombardier's positive trajectory over the past two years and present a more balanced view of the future of the company.

Originally published in LaPresse+