Exclusive - Quebec proposes curbing Bombardier control of new jet programme: sources

By Allison Lampert

MONTREAL (Reuters) - A proposed bailout of aircraft maker Bombardier Inc could give the Canadian and Quebec governments control of a separate board for the new CSeries jet programme, eroding the influence of the company's founding family, two sources familiar with the matter said.

Bombardier has struggled to launch the CSeries, with years of delays and cost overruns roiling the Montreal-based company. It wrote down the value of the 100-150 aircraft programme in October, sold a stake in its rail business to Quebec's pension fund and got a $1 billion lifeline from the Quebec government.

The proposal from the Quebec government would give it two seats and the federal government two seats - provided the latter matched the province's $1 billion invested in the company - on a seven-person board for the CSeries programme. Bombardier itself would only be able to nominate three of the seats, putting the company's representatives in a minority, one of the sources said.

The federal government is under pressure from Quebec, which took a 49.5-percent stake in the CSeries in return for its investment, to financially support the planemaker, which employs about 18,000 in Quebec's aerospace sector.

On Friday, senior government sources said the federal government will also likely offer up to $1 billion in aid. But some in the country's ruling Liberal party are pushing for the company to make tough concessions around control of Bombardier Inc, such as a change to its dual-class structure which has helped the Bombardier-Beaudoin family to control the company.

Prime Minister Justin Trudeau said this month that Ottawa would announce a decision on financial support before the federal budget on March 22.

"Think of it like a subsidiary," said one of the sources, referring to the CSeries board proposal.

SHARE STRUCTURE

The plan was submitted by the Quebec government and is supported by Bombardier, the same source said. The company submitted a request for financial help on December 11. It was not known whether the federal government would accept the Quebec proposal.

"They (the controlling family) understand that if people are investing in the company, they will require representation," said the source.

The sources, who are familiar with the thinking of both Bombardier and the Quebec government, declined to be identified because the negotiations are confidential.

A Bombardier spokeswoman declined to comment. A spokeswoman for Industry Canada, the government ministry handling the Bombardier request for financial help, reiterated the government would only make a decision after conducting due diligence.

A federal source familiar with the talks said it's too early to say whether Quebec's proposal about a separate CSeries board would be part of a federal bailout of Bombardier.

But Ottawa is concerned about the parent company's dual class share structure, which gives the Bombardier-Beaudoin family a roughly 54 percent voting stake. Bombardier has balked at changing the company's share structure, privately citing fears of an outside takeover.

Concerns over Bombardier's ownership structure prompted Quebec pension fund Caisse de depot et placement, a Bombardier shareholder, to take only a token part of a 2015 equity offering. The Caisse later bought a $1.5-billion stake in Bombardier's profitable rail unit and got three spots on a new board for the division.

Bombardier received a boost this month when the company secured its first order in 16 months. That was for up to 75 CSeries jets to be supplied to Air Canada.

(Additional reporting by David Ljunggren in Ottawa; Editing by Martin Howell)