By NICOLAS VAN PRAET
Wednesday, November 15, 2017
MONTREAL -- Bombardier Inc. faces no urgency in striking a rail deal of its own following Siemens AG's announcement in September that it chose France's Alstom SA as a merger partner, its chief executive officer says.
"This is a chess game," Alain Bellemare told an audience Tuesday at an investment conference in Boston organized by Goldman Sachs. "There's one move here, there's another move there but you need to keep your eye on the game. And the good news for me right now is we are in no rush to make a move. I mean, I would rather keep assessing all the options, all possibilities, see where things could go or what could happen."
Confirming publicly for the first time Bombardier was in talks with Siemens about a merger, Mr. Bellemare said he sees no change in the competitive landscape that would force Bombardier into a partnership in the short term. He said European rivals will take time to win regulatory approval for their merger and longer to combine their operations.
The CEO is leading a five-year turnaround effort that has seen his team slash costs and raise money to get the flagship C Series commercial airliner to market.
The company last month reached an agreement to partner with France's Airbus Group SA to help market and build the plane.
Profit margins for the company's train business, one of its two most important segments together with private aircraft, came in at 8.5 per cent in its latest quarter as management reduced the workforce and boosted sales. Bombardier is working to improve contract execution in the train business while booking more contracts that use existing designs.
Analysts have said the SiemensAlstom merger significantly narrows the strategic options for Bombardier Transportation, as Bombardier's rail division is called, as the Canadiancontrolled company tries to improve its global standing. The marriage of Germany's biggest train business with France's biggest creates what will be Europe's dominant rail manufacturer with combined annual sales of about 15.3-billion ($22.3-billion).
The new company would be the world's second-largest train company after China's CRRC Corp.
In a presentation to analysts on their tie-up, Siemens-Alstom said they expect to generate double-digit margins by fiscal 2020.
Bombardier was in the hunt to partner with Siemens as well and its proposal was under consideration by the German company's board until the end, high-level sources confirmed. But the politics of a FrancoGerman industrial champion proved too difficult to overcome as leaders from both countries articulated an ambition behind the scenes to create a pan-European rail champion. The French government, which controls 19.9 per cent of Alstom, threw its weight behind the merger.
Bombardier has other potential rail merger partners, including Stadler Rail of Switzerland and Spain's Grupo CAF, but they are not as big and could require more legwork.
Joining forces with a Japanese manufacturer is also possible.
Bombardier should look at all remaining options for its rail business, including partnering with stateowned CRRC, Caisse de dépôt et placement du Québec CEO Michael Sabia said earlier this month. Mr. Sabia said Bombardier considers the rail unit to be a core long-term asset and would not sell it outright. The Caisse bought a 30-per-cent stake in the business in 2015 for $1.5-billion (U.S.).
Bruno Le Maire, France's Finance Minister, has suggested he would be open to Bombardier joining Siemens-Alstom at a later date. But Mr. Sabia said that arrangement would be tough to execute. "A three-party dance is a complicated dance," he told reporters in Toronto on Nov. 1.
"It's hard not to step on people's toes."
Mr. Bellemare's comments came as Bombardier announced it struck a deal to sell 12 C Series aircraft to African carrier EgyptAir in a deal worth roughly $1.1-billion before discounts.
It is the second C Series order clinched by Bombardier since its C Series partnership with Airbus announced Oct. 16.
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