Bombardier Shares Hit Severe Turbulence on Siemens AG Setback

Bombardier Inc. (TSE:BBD.B) could also be hit by an unfavourable ruling by a U.S. court that could result in imposition of tariffs on its C Series passenger jets

SmallCapPower | September 26, 2017: Bombardier Inc. (TSX: BBD.B) stock continues to drift lower, hitting a four-month low of $2.09 on Tuesday over apprehensions of losing out of the rail deal with Siemens AG to Alstom SA and the possible countervailing duties on its C Series jets in the U.S. The twin threats also jeopardize the Company’s two-year old turnaround plan that have involved layoffs at its aircraft division and a plan to spin-off a minority stake in its ailing train-making business.

Related: Bombardier (TSX: BBD.B) Stock: Is it Worth the Risk?

On September 22, 2017, French fast-train maker Alstom SA confirmed that it is negotiating with Siemens on the train deal and that the deal could be approved as early as this week. The deal, if approved, would be a blow to Bombardier, which had recently been in final stage negotiations with Siemens on the train deal. If the Siemens-Alstom deal goes through, Bombardier’s ailing train making unit would continue to be exposed to intense competition from China’s CRRC Corp Ltd. Although the exact reasons behind the failure of the deal with Siemens are not clear, some news agencies attribute it to greater financially stability of Alstom vis-à-vis Bombardier and Siemens’ reluctance to Bombardier having a control over a joint venture.

A second threat comes from the possible unfavourable ruling by a U.S. court today that could result in imposition of tariffs on Bombardier’s C Series passenger jets. The ruling is in response to a complaint by Boeing (NYSE: BA) that alleges dumping of C Series jets into the American market by Bombardier at an unfairly low price with help from government subsidies. Last Wednesday, the U.S. Commerce Department confirmed that its decision on Boeing’s request for preliminary countervailing duties of more than 79% will be announced Tuesday. Boeing has further requested that this initial 79% anti-dumping duty to be raised to 143.4%, which if imposed could be a death blow to Bombardier’s C Series sales to the U.S. market.

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Bombardier stock had been moving higher over the past year on positive results from the turnaround plan announced some two years back. The twin threats of losing out to Alstom in a train transaction and a blow to its C Series jets in the U.S. from the Boeing dispute could put Bombardier’s five-year turnaround plan in jeopardy.

Disclosure: Neither the author nor any of the principals at SmallCapPower, or their family members, own shares in the company mentioned above.

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