Does Bombardier, Inc. Even Need More Money?

Bombardier, Inc. (TSX:BBD.B) has requested $1 billion in additional funding, but it may not even need this money.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Back in December, Bombardier, Inc. (TSX:BBD.B) requested US$1 billion in financial assistance from the federal government, setting off a fierce national debate. But according to recent comments from a senior executive, Bombardier may not even need the money at all.

Speaking in Switzerland, Bombardier vice president Rob Dewar (who’s in charge of the CSeries program) said, “We don’t need a backup plan because what’s secured already is actually more than we require.”

So what exactly is going on here? Does Bombardier really need the money? And if not, then why has the company made such a request?

The numbers

Bombardier exited 2015 with just over US$4.0 billion in liquidity, which includes US$2.7 billion in cash and US$1.3 billion in unused credit lines. In addition, the company is due to receive $1 billion from the government of Quebec, and another $1.5 billion from the province’s largest pension fund. That brings the total liquidity figure to $6.5 billion, giving Bombardier lots of cushion in the near term.

And according to past statements, this should be enough money. For example, at Bombardier’s Investor Day in late November, CEO Alain Bellemare said, “We will have the right level of liquidity to execute our plan.” CFO John Di Bert made similar comments at the event: “My expectation here is that we have the liquidity necessary to get through the investment programs to sustain and to fund the operational transformations we need to undertake.”

To be more specific, Bombardier expects to start generating positive free cash flow in the back half of 2018. And $6.5 billion should be enough to sustain the company until then. So why exactly is the company looking for federal help?

It’s all about confidence

Buying an airplane isn’t like buying a toothbrush. When an airline purchases an airplane, it wants to be sure the manufacturer remains committed to the program. Likewise, the airline also wants assurances the manufacturer is on solid financial footing. Otherwise the airline could end up with what’s known as an “orphan plane.”

And it’s very disadvantageous to own an orphan plane. One problem is that pilots require extra training to fly the plane. Another problem is that the planes have poor resale value, which can put a dent in fleet plans.

Of course, Bombardier is not very secure financially, and this is having an impact on sales. The company hasn’t even secured a firm CSeries order since September 2014. So in an ideal scenario, a government injection will bring about more confidence in the company, which will lead to more CSeries sales, feeding a virtuous cycle. Other than a takeover, it’s the best outcome shareholders can hope for.

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.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Cogs turning against each other

Top 2 Stocks That Could Beat the Recession

Recession-resistant stocks like Dollarama (TSX:DOL) should be on your radar in 2022.

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

The 3 Best Dividend Stocks for Monthly Passive Income

These three dividend stocks are the best options for those seeking high passive income in the next few years in…

Read more »

clock time
Dividend Stocks

Got $10,000 to Invest? 1 Cheap TSX Stock to Buy Right Now

This top TSX dividend stock is finally on sale and has made some savvy buy-and-hold investors quite rich.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Want Monthly Passive Income? These TSX Dividend Stocks Are for You

If you want monthly passive income from TSX stocks, you have to do a little digging. I've given you a…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Bank Stocks

The Most Valuable TSX Stock Out There Is up 10% This Month!

This TSX stock is the best value stock out there, expanding even during a downturn and setting itself up from…

Read more »

ETF chart stocks
Dividend Stocks

3 International ETFs to Buy for a Diversified Portfolio

Some international markets may prove more resilient against economic downturns, and exposure to them may strengthen your portfolio during crashes…

Read more »

Payday ringed on a calendar
Dividend Stocks

TFSA Pension: 3 Canadian Dividend Stocks to Buy for Monthly Passive Income

These high-yield Canadian stocks look good to buy right now for a TFSA focused on monthly passive income.

Read more »

A worker uses a laptop inside a restaurant.
Tech Stocks

2 U.S. Stocks Canadian Investors Can Buy and Hold Forever

Blue-chip companies such as Microsoft and Coca-Cola are forever stocks that have the potential to beat the market in 2022…

Read more »