Bombardier has “baffling” management, says Ross Healy

A big plateful of tough love seems to be on offer for beleaguered plane and train maker Bombardier (Bombardier Stock Quote, Chart, News TSX:BBD.B) from the Quebec government which has said there won’t be anymore bailout funds heading Bombardier’s way.

And it’s no wonder, says portfolio manager Ross Healy, who blames management for the company’s current precarious position.

“I’ve been in the stock over the years but … this management, in their desire to keep control of the company, has missed a couple of spectacularly good opportunities to raise equity at very, very high price to book ratios,” said Healy, senior portfolio manager at MacNicol & Associates Asset Management and chairman of Strategic Analysis Corporation, speaking to BNN Bloomberg on Thursday.

“The [mid-2018] spike in the chart where the stock went up to 10x book, well, if you’re going to raise money, 10x book has got to be about the cheapest equity that you’re ever going to get,” Healy says. “But they didn’t, and why not? They didn’t need handouts from the government. They could’ve gone to the equity market which would have cheerfully given them a billion dollars. Now, of course, their price is way, way down and they probably couldn’t raise five per cent at a flea market and they’re having to sell some
of their good assets in order to keep going.”

“This is a baffling management,” Healy says.

Bombardier’s share price dropped to a multi-year low in mid-January on pared down guidance from management for its full 2019 earnings along with indications that the company would have to sell some parts in order to address its looming debt, which as of last fall amounted to $10 billion.

It seems that all of Bombardier’s parts are under speculation of being sold. Last year,
Bombardier sold its regional jet business to Mitsubishi Heavy Industries, leaving it with
its business jet division, a rail division and a narrow-body jet program shared with
Airbus.

Last month, management said it’s rethinking its partnership with Airbus over the A220 jet, established in 2017 as a way to trim losses on its then-called C Series program. The company has also reportedly been holding talks with France’s Alstom SA on Bombardier’s rail-equipment unit and, this week, news broke that Bombardier may sell its business jet unit to US conglomerate Textron. Pressure has been mounting on the company as the Quebec government led by Premier François Legault has said that while the prospect of losing Bombardier along with its jobs and intellectual property are real, there likely won’t be further funds coming from the province to bail out the company.

“The government has already invested a lot of money in Bombardier,” said Legault on Wednesday.

Healy agrees that more federal and provincial handouts would be the wrong move in Bombardier’s case.

“They have not shown that they can manage themselves, so why would you throw more money at them?” Healy said.

“It would be a strategic loss for Canada and that’s why the government of Quebec has been so supportive over the years. But support means that you and I work together, it doesn’t mean that I’m always propping you up,” he added.