Bombardier, Inc.: Will the Stock Rally on News of Federal Aid?

Bombardier, Inc. (TSX:BBD.B) is looking for more government money, and investors are trying to decide if that’s a good thing.

| More on:

Bombardier, Inc. (TSX:BBD.B) has asked the federal government for US$1 billion in aid, and investors are wondering if another round of government funding will finally send the shares soaring.

Bailouts abound

Bombardier has been burning through funds at a fantastic rate in recent years, and cost overruns in its beleaguered CSeries program finally caught up with the plane maker early last year.

The company brought in a new CEO, suspended the dividend, and somehow managed to convince investors to pay $2.21 per share in an equity issue that raised $1.1 billion. The bond market also gobbled up US$ 2.2 billion in new senior notes.

As 2015 progressed, it became evident that extra cash would be needed, but adding more debt or issuing additional shares wasn’t an option. Instead, Bombardier went to the Quebec government and its pension fund to find the money.

Quebec handed over US$1 billion for a 49.5% stake in the CSeries program and province’s pension fund coughed up US$1.5 billion for a 30% position in the rail division, Bombardier Transport.

Now the company is asking Prime Minister Trudeau to kick in an additional US$1 billion.

Does Bombardier need the money?

Bombardier has indicated it needs about US$2 billion in funding to get it through 2020, when it expects the CSeries program to begin generating profits.

But investors and taxpayers are a bit confused because Bombardier’s vice president of the CSeries program recently told the Financial Post that the requested handout from the federal government would be “really just an extra bonus that would be helpful, but is very clearly not required.”

What should investors do?

If Bombardier really doesn’t need the fed’s cash, it might be a good sign. The first CSeries is set for delivery in June, and once the customer, Swiss International Airlines, takes possession of the jet, Bombardier will be paid for the plane, and the CSeries program will officially be off the runway.

An additional investment by the federal government will certainly provide a nice cash cushion, and the market could perceive the move positively and send the stock higher.

Whether or not a fed-induced gain in the share price will hold is another question.

The government isn’t going to hand over that much money without some serious strings attached, and the arrival of the feds to the game will mean that three separate government stakeholders will be trying to work with the famous Bombardier family to run the company.

It might work out well, but I’m not holding my breath.

On the operational side, Bombardier is facing a long road to profitability with the CSeries program, and sales are still shy of the company’s target. At the same time, the rail division is struggling to fulfill contract obligations and is losing big U.S. deals to the Chinese.

Contrarian types with a high risk tolerance might want to take a small position on the hopes of a rally, but I would avoid the stock. There are simply too many moving parts to the story right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Money growing in soil , Business success concept.
Investing

2 Great Dividend-Growth Stocks to Stash in a TFSA for Decades

CN Rail (TSX:CNR) and another dividend grower look cheap enough to own in a TFSA value fund for the long…

Read more »

Canada day banner background design of flag
Retirement

Essential RRSP Stocks: 2 Canadian Picks to Secure Your Retirement

Two dividend stocks are ideal anchors for Canadians intending to contribute to their RRSPs in 2024 and save for retirement.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Retirement

5 Strategies for Maximizing Your CPP Benefits in 2024 and Beyond

Are you looking for the best way to max out your CPP benefits? Here are some tips you may not…

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

Better Artificial Intelligence Stock: UiPath vs. C3.ai

Deciding between UiPath and C3.ai isn't easy since both have strengths and weaknesses.

Read more »

data analyze research
Investing

The 1 Stock to Own in a Sideways Economy

Here's why Restaurant Brands (TSX:QSR) remains a top TSX stock investors shouldn't ignore for long-term gains in this market.

Read more »

Retirees sip their morning coffee outside.
Retirement

Here’s the Average RRSP Balance at Age 65 and 71 in Canada

Canadian investors can consider holding dividend stocks and supplement their CPP and RRSP payouts in retirement.

Read more »

Technology
Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks

The TSX is lucrative to buy these magnificent dividend stocks in bulk and be proud of this decision 10 years…

Read more »

sale discount best price
Energy Stocks

Time to Pounce: 1 Phenomenal TSX Stock That Hasn’t Been This Cheap in a While

Now could be the time to get into Cameco (TSX:CCO) stock, which is up 81% in the last year but…

Read more »