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Bombardier fills new M&A executive role fueling business jet divestment speculation

Last updated: 17:21 04 Jun 2015 EDT, First published: 15:21 04 Jun 2015 EDT

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Bombardier will spin off part of its transportation division, even if a smaller unit than expected. The company said in a statement that it is preparing an initial public offering (IPO) for a minority stake in Bombardier Transportation to be listed in Frankfurt, Germany, where its transportation global headquarters are based

Bombardier (TSE:BBD.B) has filled a new senior management position, hiring Louis G. Veronneau as the vice president, mergers and acquisitions, a position that the company has created recently, adding fuel to rumors that the company is planning a significant M&A move beyond the rail transportation division.

Veronneau, a lawyer who was until recently an investment banking director, investment banking at TD Securities, will oversee the team of ten people, specializing in mergers and acquisitions, and will report directly to President and CEO, Alain Bellemare.

He will also oversee partnerships, joint ventures, mergers, acquisitions and disposals of business globally and will doubtless play the leading role in the eventual preparation of an initial public offering of a minority stake in the rail unit.

Indeed, Bombardier will spin off part of its transportation division, even if a smaller unit than expected. The company said in a statement that it is preparing an initial public offering (IPO) for a minority stake in Bombardier Transportation to be listed in Frankfurt, Germany, where its transportation global headquarters are based.

The company's transportation division designs and manufactures rail vehicles, rail control systems and bogies.

The appointment of an executive to work solely on mergers and acquisitions, however, suggests that Bombardier is looking to make changes to its aerospace division, which it split into special sectors in 2014, separating the manufacturing of commercial aircraft such as the C-series from business ones such as the Global series.

This detachment has made it easier to sell off various aspects of the business, and given lagging sales and related layoffs, it is the business aircraft sector that is could most likely be jettisoned.

The commercial aircraft division is in better health as Bombardier confirmed that Swiss International Air Lines, a division of the Lufthansa Group, will be the first to take delivery and operate a CS100 airliner while the company moves to increase development, production rates and model variants.

Bombardier expressed concern that orders for the Global 5000 and 6000 business jets from Latin America, China and Russia have dropped sharply, prompting a cut in production rate to meet the situation. Increasing competition from traditional competitors and new entrants to the sector have was also blamed for reducing sales.

In 2014, Bombardier increased the production rate of the ‘Global’ family of aircraft, which is mainly assembled its Dorval facility, by 30% - and by some 50% over the past two years; but, Bombardier was delivered 79 such aircraft. The development of the new Global 7000 and 8000 series will continue as planned.

Another of the split units that could be sold is the aerostructures and engineering services sector, which could easily be absorbed by Bellemare’s former company, Pratt & Whitney, a division of United Technologies or its competitors from Airbus, Boeing or, GE and Pratt & Whitney.

At present, Bombardier already manufactures nacelles for Gulfstream and components for Airbus.

Bombardier has cut up to 2,500 jobs worldwide related to its Business Aircraft division, which has decided to reduce its production rate for the Global 5000 and Global 6000 jets, its largest in the category.

The world’s largest aircraft manufacturer will also reduce its labor force at its production facilities in Toronto, Ontario and Belfast, Northern Ireland, where anywhere from 280-480 workers will be laid off.

In 2014, Bombardier increased the production rate of the ‘Global’ family of aircraft, which is mainly assembled its Dorval facility, by 30% - and by some 50% over the past two years but deliveries have dropped in 2015.

The development of the new Global 7000 and 8000 series will continue as planned and a prototype is already on the assembly line, as Bellemare assured that orders for this model are “strong”.

Bombardier was trading 3.46 percent lower this afternoon in Toronto.

 

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