Bombardier gains from ‘land boom’ in $635mn deal

Bloomberg

Bombardier Inc.’s drive to bolster its cash reserves is getting a lift from the booming real-estate market in Canada’s biggest city.
The maker of planes and trains agreed to sell its Downsview factory in Toronto to Canada’s Public Sector Pension Investment Board for about $635 million. The transaction is expected to close in the second quarter, increasing cash by more than $550 million after costs, Bombardier said in a statement as it reported earnings.
The deal buoys Chief Executive Officer Alain Bellemare’s goal of fortifying Bombardier’s balance sheet, which is saddled with about $9 billion of debt from pricey development programs for the C Series airliner and the Global 7000 business jet.
Bombardier raised C$638.4 million ($498 million) in a share offering in March, taking advantage of this year’s biggest stock gain among Canadian industrial companies.
The Downsview sale “further improves Bombardier’s liquidity position,” Kevin Chiang, a CIBC World Markets analyst, said in a note to clients. “We continue to see the company execute against its long-term strategy, further de-risking its operations and balance sheet.”
Bombardier will continue to operate from Downsview for as many as three years after the land sale closes, with options for two one-year extensions.
Production will be moved to a 38-acre site at Toronto Pearson International Airport in about three years, Bellemare said on a conference call with analysts. The company plans to open a final assembly plant for its Global business jets at Pearson and hasn’t decided where to build the Q400 turboprop, which is currently made at Downsview.
Bombardier said in January that it had begun reviewing options for Downsview because the company uses only about 10 percent of the 375-acre site and bears the entire cost of operating a 7,000-feet runway. Cowen & Co. analyst Cai von Rumohr said in February that Downsview could fetch as much as $1 billion.
“This bolsters liquidity and allows Bombardier to rationalise production footprint, but the net proceeds look below some estimates,” he said in a note to clients.
Bellemare is about halfway through a five-year turnaround plan designed to boost profitability and cash flow. The CEO is targeting a debut later this year of the Global 7000 after having shored up liquidity, cut jobs and struck a partnership in which Airbus SE will take control of the C Series.
Bombardier said it now expects the venture to close by the end of next month. The companies originally targeted a closing in the second half of the year.