TORONTO (Reuters) - Bombardier Inc shares plummeted on Wednesday as the Canadian plane and train manufacturer's failed attempt to sell a majority stake in its troubled CSeries jet program exposed the depths of its financial problems.
Talks between Bombardier and Airbus broke off on Tuesday after Reuters reported that the Canadian company had offered to sell a majority stake in the CSeries to its larger European competitor.
Shares in Bombardier, which ended the day 15 percent higher on Tuesday following the Reuters report, were down 14 percent at C$1.52 on Wednesday.
The failed talks are the latest blow for Bombardier, which is struggling for cash as its CSeries limps towards commercial service next year, years late and billions of dollars over its original budget.
"Overall, we think Bombardier approaching Airbus is negative as it could imply serious funding or CSeries sales issues," said Canaccord analyst David Tyerman in a note to clients, following Reuters' report on the talks on Tuesday.
Airbus and Bombardier issued separate statements on Wednesday, confirming talks, but saying they had ended. A person familiar with the situation said Airbus ended the talks shortly after they became public.
"A deal with the Chinese seems to make the most sense, but that may be politically impractical from the Canadian government's perspective," said Credit Suisse (SIX:CSGN) analyst Rob Spingarn.
Industry Canada, which makes rulings on foreign acquisitions, did not immediately comment.
Bombardier did approach an unnamed Chinese company but those discussions ended three to four weeks ago, according to one source familiar with the situation: "In business, sometimes persistence is a virtue," said the source.
The source said Canada could allow such an investment, citing large inflows of Chinese investment in real estate and other businesses in recent years.
But another source in the banking industry said: "If they get the money from non-Westerners that adds another level of complexity in terms of transfer of technology."
The CSeries has loaded Montreal-based Bombardier down with debt, spurring the company to consider asset sales or other measures to raise cash.
As of June 30, Bombardier had $9 billion in long-term debt and $3.1 billion in cash, after burning through some $808 million in free cash flow in the quarter.
Bombardier has struggled to win orders for the 100-160 seat CSeries, which some analysts say is stuck in a shrinking market between smaller regional jets and best-selling 150 to 180-seat models. It has not announced a new firm order in more than a year.
"It's a tough part of the market. No one's really been able to get off the ground," Simon Elsegood, aerospace analyst from CAPA-Centre for Aviation said on the sidelines of the CAPA World Aviation Summit in Helsinki.