Kristine Owram | March 24, 2016 3:06 PM ET
Bombardier Inc. may 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 company’s shares.
Bombardier has asked the federal government for US$1 billion, matching the contribution made by the Quebec government in the fall. If the company’s wish is granted, it’s likely the troubled CSeries jet program will be spun out into a separate entity that will be split evenly between the company and the two levels 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 can sell 66 per cent of the CSeries to the government for US$2 billion, that implies some value creation.”
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 has changed fundamentally.”
“There are still many risks surrounding this story, the most critical of which is deal structure and the federal government’s willingness to invest in the program,” Quettawala wrote.
“While we are not Bombardier bulls due to our fundamental view, we think that there may be near-term upside to the shares post this restructuring.”