Bombardier Inc likely to spin off CSeries if government ‘Bailout 3.0’ approved, analyst says

Bombardier Inc. might be able to unload most the CSeries to the federal and Quebec governments if “Bailout 3.0” qualifies, prompting Scotiabank to upgrade the company’s shares.

Bombardier has asked the federal government for US$1 billion, matching the contribution produced by the Quebec government within 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’ll be split evenly between your 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 include positive value to Bombardier’s equity,” he wrote in a note to clients.

“As such, if Bombardier can sell 66 percent from the CSeries towards the government for US$2 billion, that implies some value creation.”

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Quettawala estimates that the shares could rise to $1.75 – about 35 per cent above their current value – when the CSeries is hived off.

As an effect, 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 also the federal government’s willingness to invest in this program,” Quettawala wrote.

“While we are not Bombardier bulls due to our fundamental view, we think there might be near-term upside towards the shares post this restructuring.”