Bombardier, the embattled Canadian train and plane maker, is exploring a combination of its rail business with French rival Alstom, according to people familiar with the matter.
The two companies have held preliminary talks about a rail deal in the past few months, said the sources, adding the latest considerations between Bombardier and Alstom — which makes TGV trains and Luas trams — could face competition scrutiny.
A rail deal is among several options the Canadian company is exploring to stabilise its portfolio, which also includes business jets, they said.
The deliberations started before Bombardier shocked the market last week by warning of disappointing fourth-quarter sales.
Bombardier also said at the time that it may exit a joint venture with Airbus that makes the A220 jetliner and potentially take a major writedown.
Bombardier doesn’t face an immediate cash crunch thanks to the proceeds of recent asset sales and no big debt maturities this year.
But having already offloaded its ageing turboprop aircraft line and its Belfast wing factory, it’s not exactly overburdened with stuff to sell to meet future liabilities.
A takeover of Bombardier’s rail business by Alstom would mark the latest attempt by some of the world’s biggest trainmakers to counter growing competition from China.
Bombardier in 2017 held talks to combine its rail operations with competitor Siemens until the German company suddenly opted to pursue a deal with Alstom.
The EU in February last year blocked the Franco-German merger, which would have created a European rail champion after regulators refused to cave into warnings about the looming threat of Chinese competition. Alstom is unlikely to pursue a merger with Bombardier due to competition considerations.
“Revenue is similar and a merger would create a significant concentration of sales in the European rolling-stock sector, akin to the recently rejected Alstom-Siemens Mobility deal,” said Mustafa Okur, European Industrials analyst at Bloomberg Intelligence.
While best known as a manufacturer of metro, commuter and regional trains, Bombardier has collaborated in high-speed projects including Alstom’s high-speed TGV.
The Canadian company generated sales of €8bn from the rail transport business in 2018 while Alstom’s reached €8.1bn in its latest financial year.
The potential end of Bombardier’s involvement in A220 manufacturing, combined with new stumbles in the company’s rail business, have undermined a once-great name in manufacturing — just when investors thought they were poised to reap the rewards of a difficult turnaround effort.
Walking away from the A220 — for which the wings are made in Belfast and co-owned by Airbus — would close the book on Bombardier’s work on an aircraft programme in which the company invested $6bn.
The negative earnings announcement could hamper efforts to reach a deal with Alstom, weighing on the estimated value of the Canadian company’s rail operations.
Bombardier in 2015 sold a 30% stake in its Berlin-based train business to pension fund Caisse de Depot et Placement du Quebec, valuing the unit at $5bn at the time and helping the firm raise capital as it faced a cash drain from delays for its new jets. Before that, it had considered an IPO of the rail unit.
Were Bombardier to exit both rail and the A220 project, control of which it ceded to Airbus in 2018, its operations would be confined to manufacturing corporate aircraft under the Learjet, Challenger, and Global brands.
The company sold its turboprop business to Longview Aviation Capital for $300m in a deal completed last year, while Mitsubishi Heavy Industries agreed to buy the CRJ regional jet arm for $550m in June.
Last week’s profit warning stripped about a third of Bombardier’s already much-diminished value.
The trains and private jet manufacturer may be forced to exit its commercial aerospace joint venture with Airbus because of a shortage of cash.
About a decade ago Bombardier signed off on the C-Series, an ambitious attempt to break Airbus and Boeing’s lock on the commercial aerospace market.
The small, fuel-efficient jet won rave reviews but orders were disappointing and delays caused costs to balloon and debt to pile up.
Bombardier made things worse by trying to bring several new business jets to market at the same time.
Weak sales forced it to abandon development of the Learjet 85 — resulting in a $2.5bn writedown — and to cede control of the C-Series to Airbus for the humiliating sum of 1 Canadian dollar.