Alstom to Consider Weak Bombardier Transportation Results in Takeover Talks

Written by Kevin Smith, Editor-in-Chief, International Railway Journal
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Alstom is building new high-speed trainsets for Amtrak Northeast Corridor Acela service.

Alstom says it will “take into account the consequences” of the operating and financial developments at Bombardier Transportation in forthcoming takeover discussions after the company reported an adjusted Ebit loss of $383 million in the second quarter of 2020.

Bombardier Transportation reported revenues of $1.5 billion in its second quarter results released on Aug. 6, reflecting a lower level of production as operations at key sites in Europe and North America were suspended due to the COVID-19 pandemic. Adjusted Ebitda for the quarter was -$350 million.

The company described the Ebit loss as significantly below expectations, reflecting an additional charge of $435 million, which largely relates to incremental engineering, certification and retrofit costs associated with a number of late-stage projects mainly in Britain and Germany.

Alstom received conditional approval from the European Commission (EC) for its acquisition of Bombardier on July 31. The French manufacturer announced plans to acquire 100% of Bombardier Transportation’s shares for between $7.6 billion and $8.1 billion in February. Under the deal, CDPQ, which currently holds a 32.5% stake in Bombardier Transportation, will become Alstom’s largest shareholder with around 18% of capital. CDPQ will reinvest about $2.6 billion in Alstom plus an additional $915.9 million. Bouygues will remain a shareholder in Alstom with around 10% of capital.

“Alstom remains convinced of the strong strategic rationale for the acquisition of Bombardier Transportation and is confident in its ability to restore in the medium term the profitability and commercial performance of the business,” Alstom said in a statement.

“However, the quarterly announcement points to unexpected and negative developments regarding Bombardier Transportation, which is currently facing challenges, especially when compared to the information available prior to the Feb. 17, 2020 announcement regarding Alstom’s intended acquisition.”

Delays with delivery of Aventra EMUs to South West Railway contributed to Bombardier Transportation’s poor result.

Bombardier says the outlook for Transportation remains positive. It points to its $33.7 billion order backlog and “strong industry fundamentals.” The company adds that with operation at its plants returning to normal, production is expected to accelerate in the second half, peaking in the fourth quarter and generally in line with 2019 levels.

“The engineering and production delays tied to the COVID-19 pandemic are expected to be recovered in 2021 and beyond, supporting future free cash flow generation,” the company said.

In addition, Bombardier says that a new dedicated project team was mandated to conduct “deep dives” into challenging legacy projects during the quarter. The teams are evaluating both project management and talent resources with a goal to fully understand the causes of excessive costs and to take the right corrective actions.

Bombardier has suffered delays recently with the delivery of Talent 2 EMUs to Abellio Rail Baden-Württemberg and Talent 3 EMUs to Southwest German Transport (Sweg) as well as with Aventra EMUs for the Crossrail line in London, London Overground and the Greater Anglia and South Western franchises.

A charge of $350 million relating to these delayed projects contributed to an adjusted Ebit loss of $230 million for the fourth quarter of 2019.

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