LDN - Business

After CSeries deal, Bombardier aero unit faces uncertain future

[October 28, 2017] By Allison Lampert

MONTREAL (Reuters) - Bombardier Inc <BBDb.TO> secured the future of its struggling CSeries jet but still needs to find ways to spur growth in other units that have aging products or face larger rivals, industry players and analysts said.

A blockbuster deal with Airbus SE <AIR.PA> that saw the European company take control of the CSeries for $1 leaves Bombardier's commercial aviation division with the soft-selling turboprop and regional jets lines.

Meanwhile, on the rail side, Bombardier recently lost out on a merger with Germany's Siemens AG <SIEGn.DE> and now faces off against China's merged rail company CRRC Corp <601766.SS> and a soon-to-be-formed European giant in Siemens-Alstom.

Macquarie on Friday said it would tweak 2019 company valuations to focus on corporate jets and rail, in the wake of the Airbus deal and media speculation on further commercial aircraft sales.

While the Airbus partnership boosts the CSeries and potentially Bombardier's small aerostructures and engineering division, which produces aircraft components, the remaining lines in its commercial aerospace arm are "mature and stay stable at best as the industry changes around them," according to AltaCorp analyst Chris Murray.

Removal of the CSeries headache means the company can focus on its more profitable rail and business jet divisions.

Yet even there, concerns remain with Moody's this week downgrading Bombardier partly on "longer-term concerns" about the competitiveness of its rail business and concerns about its "future in the commercial aircraft space." Bombardier said Moody's action was "ill-founded."

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A Bombardier CSeries aircraft is pictured during a news conference to announce a partnership between Airbus and Bombardier on the C Series aircraft programme, in Colomiers near Toulouse, France, October 17, 2017. REUTERS/Regis Duvignau

Bombardier's CEO Alain Bellemare said recently the firm continues to weigh options for the rail unit. Asked about the future of the commercial aerospace unit on Oct. 20, he told reporters, "Right now the focus is to keep on selling these aircraft."

"I think they will be forced to take a decision (to) either fix, coast or sell," U.S. analyst Richard Aboulafia said of the commercial plane unit. "But fix means putting some serious money into product upgrades."

Upgrading a regional jet with a new engine and wings would cost upwards of $1 billion, an amount likely to be prohibitive for the company as it spends on ramping up its CSeries and bringing its strong-selling Global 7000 to market, analysts say.

Bombardier has long weighed a sale or partnership venture to boost orders for its Q400 prop planes, which trail European rival ATR, owned by Airbus and Leonardo SpA <LDOF.MI>. Such a deal, however, would be complicated by the need to ensure Canadian job security because the aircraft are assembled in Canada, government and union sources said.

Bombardier tried unsuccessfully in 2013 to sell 100 Q400 turboprops in Russia and set up a joint-venture assembly line there.

"I'm sure they'd love to sell the Q400 if they could get a serious buyer," said an industry source specializing in the prop market.

(Reporting By Allison Lampert; Editing by Cynthia Osterman)

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