April 28 , 2016 10:45 am eastern

The big news this morning is that Bombardier announced a firm sale of 75 C- Series planes to delta airlines. Plus options for 50 more. This is certainly good news for the employees. For investors the news may not be as good as it seems. The planes were sold at a large discount to list price. In fact Bombardier announced it will take a $500 million onerous contract charge in association this order and the pending Air Canada order. It is a poor business indeed that requires a $500 million dollar “charge” in association with “winning” two large orders. I listened to three news reports about the sale and none mentioned the $500 million onerous contract charge.

Bombardier also announced that it is on-track to achieve break-even free cash flow for the C Series project by 2020. That means it would still be losing money on the program at that time after accounting for depreciation and amortisation of the development costs. That may be normal in the industry but if so that simply demonstrates what a horrible industry it is.

Bombardier’s B shares are currently¬†up 5.2% at $2.12 (after opening at $2.28). The Series 4 preferred shares are up 5.9% at $16.91. These pref shares could very well continue to rise given that the survival of the company is probably not in much doubt. The common equity shares might get one more bounce if the Federal government makes an investment. But longer term it’s not clear that the common shares will maintain value when the company has apparently locked in losses on the C Series for years to come.

Bombardier holds it annual meeting tomorrow. Despite trying to put on a brave face by holding the meeting in an Aircraft hangar with a shiny plane on display, management will face harsh criticism at the meeting. A significant portion of the votes for directors are likely to be withheld. While all directors will be elected it is a certainly an embarrassment to have say 20% of the votes withheld (if that happens) and might even cause some directors to step down, (or not).