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Bombardier, Alstom near $4.4-billion Paris rail deal

Commuters wait for a train toward France on a platform at Monaco's train station on March 8, 2016.

ERIC GAILLARD/REUTERS

A partnership between Bombardier Inc. and Alstom SA is close to clinching a contract to supply 270 commuter cars in the Paris region valued at about $4.4-billion.

"There is a very strong probability that the [Alstom-Bombardier] consortium will be the one that will build the carriages," a source at SNCF, France's national state-owned railway operator, said on Tuesday.

A second bidder, Spain's CAF, has been eliminated from the bidding process after an independent consultant hired by SNCF determined that it does not have the industrial capacity to meet the required output of one car every five days, the source said.

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Barring unforeseen developments – such as CAF appealing the decision – an announcement regarding a winning final bid by the Alstom-Bombardier team is expected early in the new year, he said.

A spokesman for Bombardier's rail unit – Bombardier Transportation – said in an e-mail message on Tuesday: "As requested by SNCF, and denoting the importance of this project for us, we are currently preparing our very competitive Best and Final Offer. As the process is still ongoing, we unfortunately cannot comment further and would refer you to SNCF for further queries."

If it goes through, such a contract would provide a boost to Berlin-based Bombardier Transportation, which has been struggling with execution and other issues. Last year, Bombardier sold a 30-per-cent stake in the business to pension fund giant Caisse de dépôt et placement du Québec for $1.5-billion (U.S.).

BT regularly fails to meet its profit-margin targets. Among problematic contracts are its repeated failures to deliver streetcars on time to the Toronto Transit Commission.

Last month, Montreal-based Bombardier – which also manufactures planes – said it is cutting 7,500 jobs in an effort to rebuild profit as concerns continue over production delays on its flagship C Series airliner and heightened global competition in the rail market. About two-thirds of the job cuts are expected to be made at BT.

Meanwhile, Bombardier also said on Tuesday that it recorded a strong performance in its business-jet division in the last quarter, delivering 36 airplanes.

The company said it expects to exceed its guidance of 150 business aircraft deliveries in 2016. The year-to-date total is 109.

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Such numbers appear to run counter to what is generally viewed as a still-difficult global market for corporate aircraft.

A shaky global economic recovery and continued softness in the luxury-jet segment of aircraft sales are the order of the day, Bombardier said in notes accompanying its second-quarter earnings report recently.

Of particular concern is the light-business-jet market, where Bombardier competes with its Learjet family. The company cancelled development of a new Lear model, the Learjet 85, last October, booking a $1.2-billion (U.S.) writedown on the program.

There is industry talk that Bombardier is open to selling its Learjet unit.

On Tuesday, Bombardier said it delivered 7 Learjets, 19 mid-size Challengers and 10 of the larger-size Global aircraft in the three months ended Sept. 30.

The company said it took in gross orders for 30 business jets in the quarter, bringing its year-to-date total to 122.

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"I'm very pleased with our performance in this very competitive environment," Bombardier Business Aircraft president David Coleal said.

"We are seeing the benefits of the pro-active actions we took last year to both align our production rates with market conditions and better serve our clients."

Bombardier's business-jet unit now boasts a "robust net book-to-bill ratio approaching 1.0," he said.

Book-to-bill is a key industry metric expressing the number of new orders received versus the number of completed planes delivered. A ratio of 1.0 is considered healthy.

Desjardins Securities analyst Benoit Poirier said the third-quarter business-jet deliveries are roughly in line with his estimates and that he was expecting 152 deliveries this year, "which is generally in line with management's comments this morning."

But he expressed concern over the company's being below the net book-to-bill of 1.0 "necessary to sustain either the current production rate or pricing power in the long run in the absence of a pick-up in market activity."

Senior Bombardier executives are expected to comment next week on third-quarter earnings and on the outlook for 2017.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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