Bombardier Inc. might be able to unload a majority of the CSeries onto the federal and Quebec governments if “Bailout 3.0” is approved, prompting Scotiabank to upgrade the business’s shares.
Bombardier has asked the federal government for US$1 billion, matching the contribution made by the Quebec government in the fall. When the company’s wish is granted, it’s likely the troubled CSeries jet program will be spun out into a separate entity that’ll be split evenly between your company and the two amounts of government, said analyst Turan Quettawala.
“We have written extensively about why we believe the CSeries is very unlikely to add positive value to Bombardier’s equity,” he wrote in a note to clients.
“As such, if Bombardier sell 66 per cent from the CSeries towards the government for US$2 billion, that implies some value creation.”
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Quettawala estimates that the shares could rise to $1.75 – about 35 per cent above their current value – if the CSeries is hived off.
As a result, he upgraded Bombardier to sector perform from sector underperform but cautioned that “nothing is different fundamentally.”
“There continue to be many risks surrounding this story, probably the most critical which is deal structure and also the federal government’s willingness to invest in this program,” Quettawala wrote.
“While we are not Bombardier bulls because of our fundamental view, we think that there might be near-term upside to the shares post this restructuring.”
