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Bombardier faces UK fraud investigation over plane contracts for Garuda

British inquiry follows other investigations have targeted the aerospace manufacturer in countries such as Sweden and Spain.

November 6, 2020   by Ross Marowits

MONTREAL — Bombardier Inc. says it has launched an internal review after Britain’s Serious Fraud Office confirmed it is investigating the aircraft maker over suspected bribery and corruption related to plane orders for Garuda International.

“A few weeks ago, we were informed by the SFO which also wanted to investigate Bombardier,” company CEO Eric Martel said in an interview. “I cannot comment, but we are very open and we will co-operate with the investigation ”

No charges have been laid against Bombardier or its employees in connection with this matter, spokesman Olivier Marcil wrote in an email.

He said the review is being conducted by external counsel.

The British inquiry follows other investigations and verifications that have targeted Bombardier in countries such as Sweden and Spain in recent years. The company was also questioned by the World Bank over a railway equipment contract in Azerbaijan undermined by corruption charges.

Garuda’s former CEO and an associate were convicted by Indonesia’s corruption court for bribery and money laundering related to the purchase of Airbus planes and Rolls-Royce engines. The ex-CEO was sentenced to eight years in prison and fined US$1.4 million.

The two aircraft giants agreed to pay fines in plea deals with prosecutors from several countries over alleged corruption dating back 15 years.

Garuda leased 18 CRJ 1000 aircraft from a Danish aviation firm that bought the jets from Bombardier starting in 2012.

However, the airline last year said it was seeking buyers of its fleet of CRJ’s after determining that the planes were “ill-suited” to its Southeast Asia operations. according to a report from an industry trade publication. It bought the planes to launch new air services linking various cities to bypass the country’s congested hub in Jakarta.

Bombardier sold its CRJ Series aircraft program in June to Mitsubishi Heavy Industries for about US$550 million. The sale was part of the Montreal-based company’s restructuring to become a pure-play business aircraft manufacturer. It expects to sell its railway division to France’s Alstom in the first quarter for US$8.4 billion.

Bombardier said it hasn’t concluded its cost-cutting efforts as it refocuses operations on business jets while COVID-19 affects its liquidity position and causes a more than 30% drop in industry aircraft deliveries.

Martel said “no stone will be left unturned” as it pursues cost-savings.

“Yes, surely there are going to be layoffs that will come with this,” he said during a conference call with analysts. “What I can’t tell you is where and when.”

Shortly after Martel assumed his position last June, Bombardier announced the elimination of 2,500 positions, including 1,500 in Quebec, or more than 11% of the workforce in its aviation division.

While the resumption of deliveries is faster on the business jet side than commercial jets, capacity is twice as great as demand. The company expects 100 to 120 will be handed over to customers this year, down from 142 last year.

Martel said the company’s footprint must be reduced. He intends to present his five-year plan once the sale of Bombardier Transportation is completed.

Bombardier’s long-term debt will remain high at US$4.5 billion even with nearly US$4 billion of proceeds from the sale of railway operations.

“I do not anticipate needing the government to ensure (the company’s) survival,” he said.

Earlier, the company reported net income of US$192 million in its third quarter compared with a net loss of US$91 million in the same quarter last year.

The company, which keeps its books in US dollars, says the profit amounted to five cents per diluted share for the quarter ended Sept. 30 compared with a loss of six cents per share a year ago.

Revenue, including the railway division, totalled nearly $3.53 billion, down from $3.72 billion in the same quarter last year.

On an adjusted basis, Bombardier says it lost $215 million or 13 cents per share in its third quarter compared with an adjusted loss of $55 million or four cents per share a year ago.

— With files from Julien Arsenault in Montreal.

 


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