Quebec is adding US$300 million to the CSeries venture, essentially to protect its investment and hope for eventual recovery. But is it really a bit of deja vu?
As a 25% shareholder of the Airbus Canada Limited Partnership, Quebec is injecting its share of US$1.2 billion in new investments into the A220 program, thus avoiding the dilution of its stake. The remaining 900 million come from Airbus, a 75% shareholder.
In addition, Quebec obtains a new postponement of the date of redemption of its interest, from 1er January 2026 to 2030, “which will give time for Airbus Canada to create more value in the A220 program”, underlines the government. Airbus does not expect the program to become profitable until at least 2026. The takeover date had already been pushed back by three years shortly before the pandemic, when Bombardier sold its stake in the company to its two partners.
This time saving is also to be put in perspective that the book value of the initial investment, estimated at 1.3 billion, has been reduced to zero on the books of the Economic Development Fund. “As at March 31, 2021, management is of the opinion that the Fund’s 25% interest has suffered an other-than-temporary impairment and that the fair value of the investment is nil. As a result, an impairment charge of $289 million was recognized,” reads the annual report.
However, Quebec was not at its first dilution. Already in 2017, when Bombardier sold “for $0” a 50.01% share of the limited partnership to Airbus, Investissement Québec’s stake fell to 19%. It was initially 49.5%, to then be lowered to 38% under the influence of reinjections carried out by Bombardier to keep the program afloat, then moribund. Then it rose to 25% after Bombardier left the runway in February 2020. Quebec had accepted the dilution in 2017, convinced that Airbus would make a clearly positive contribution to the program.
Indeed, the arrival of the European at the controls of the program made it possible to avoid a bitter commercial failure in aeronautics. Airbus brought its marketing strength, its supply expertise and its global industrial presence. Then an orphan, the CSeries suddenly found a place within an extended family of aircraft, under the wing of an actor capable of competing with a Boeing, which was then eyeing the Bombardier market in the 100 to 160 segment. seats.
Since the arrival of Airbus, some 180 aircraft have been delivered and an order book of nearly 500 aircraft. The market estimate in this segment was then 4,000 to 6,000 aircraft over 20 years, a projection later described as rather optimistic by the European giant, which however said it was hopeful that the A220 and its versions could occupy 50% demand in this segment.
Thus what, in the initial commitment of Quebec, was intended to be a rescue operation of the Quebec aeronautics giant becomes, with the 300 million $US of today, an investment in the valuation of a participation which does not ‘has lost its value only in the accounting books.
In addition, the injection of US$900 million by Airbus to increase the production rate at its Mirabel and Mobile plants, in Alabama, is a strong signal. With a view to reaching the break-even point, the assembly rate of 6 aircraft per month this year, including 4 in Mirabel, should reach 14, including 10 in Mirabel. The workforce of 2,500 employees in the Laurentians should increase to 3,000. And Quebec would have obtained new commitments in terms of jobs and maintaining production, assures the government.