Montreal

Bombardier in talks to sell train-making division to French multinational Alstom

Bombardier Inc. is negotiating a preliminary deal to sell its transportation division to Paris-based Alstom SA, reportedly for $7 billion US.

The sale would leave Bombardier with only its business-jet unit

Bombardier's transportation division employs around 4,000 people in Canada. (Sandi Krasowski/The Canadian Press)

Bombardier Inc. says it is in talks over a potential deal to sell its rail business to French train giant Alstom SA.

The deal would narrow Bombardier's focus as the plane-and-train maker would commit itself solely to business jets while casting off its largest division in part to help pay down $9.3 billion US in debt.

The would-be acquisition also signals an effort by Alstom to scale up amid rising competition from China's state-owned CRRC, the world's largest train maker.

Bombardier and Alstom say discussions are ongoing and no final decision has been made.

Any deal is expected to come under intense scrutiny from antitrust regulators in the European Union. Last year, EU authorities blocked a proposed merger between Alstom and the train division of German industrial conglomerate Siemens AG, arguing the proposed tie-up would result in higher price tags on signalling systems and bullet trains.

Bombardier selling off divisions

Montreal-based Bombardier has sold several divisions since CEO Alain Bellemare took the helm in 2015, including its turboprop and aerostructure segments as well as its commercial airline unit, once touted as the company's crown jewel.

Bombardier announced last month it was working to reduce debt and pursuing strategic options, which analysts and other observers suggested could include the sale of the company's rail or business jet units.

Media reports on Sunday said Bombardier had reached a preliminary deal to sell its train division to Alstom for more than $7 billion US.

Bombardier shares have fallen about 70 per cent since July 2018 while Alstom's have risen by more than 50 per cent over the past two years, including four per cent after markets opened Monday.

Sold A220 jetliner program

Bombardier announced the sale of its remaining stake in the A220 commercial jetliner program as it reported quarterly results last Thursday, marking the end of its failed bid to take on the commercial aircraft duopoly of Airbus SE and Boeing Co.

The agreement with Airbus and the Quebec government hands Airbus a 75 per cent share in the A220 partnership, up from just over 50 per cent, while Quebec's stake rises at no extra cost to 25 per cent, from 16 per cent.

In exchange, Airbus pays Bombardier $591 million us for the rest of its slice of a plane franchise that cost it more than $6 billion to develop.

The niche plane program — formerly called the C Series — faced constant delays and cost overruns and lacked the marketing might of its two massive competitors, despite a $1-billion investment from Quebec in 2016 and a $372.5-million loan from Ottawa the following year.

The company has ramped up production of high-margin business jets, which it expects will drive double-digit revenue growth with 160 unit sales in 2020 amid a $16.3-billion backlog. But delays and "some volatility" continue to plague several "large, challenging" rail contracts, Bellemare noted Thursday.

Need for 'deleveraging'

While its business jets are now at full production, analysts highlight the cyclical luxury market of private planes in comparison to the relatively stable field of rail car and network construction, which is fuelled by government infrastructure projects.

The two divisions represent Bombardier's only remaining revenue streams after the company sold its water-bomber unit, Q400 turboprop business, CRJ regional jet program and flight-training enterprise over the past four years, among other appendages.

"The reason why we're looking at strategic options is to accelerate deleveraging of the business," Bellemare said on a conference call with analysts last week, referring to reported negotiations with Alstom and other companies over the rail and business jet segments.

Bombardier, founded in Valcourt, Que., in 1942 as a snowmobile manufacturer, now stares down a $9.32-billion debt load — nearly 60 per cent of it due within five years.

The rail business, Bombardier Transportation, is based in Berlin. In Canada, it employs some 1,000 workers at factories in Quebec's Bas-St-Laurent region and in St-Bruno-de-Montarville, on Montreal's South Shore and another 3,000 across Canada.

With files from Reuters and Radio-Canada

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