Among the list of scandals Bombardier, Inc. (TSX:BBD.B) has had to deal with recently (an investigation by the World Bank into alleged bribery and corruption in a deal which was made between Bombardier employees and Azerbaijani officials for train signaling systems, an ongoing trial for the aforementioned investigation which is taking place in Sweden, and an international dispute with Boeing Co. (NYSE:BA) in which the American plane manufacturer has requested tariffs be put on Bombardier planes due to allegations that Bombardier has dumped planes at below cost in the U.S. market), yet another headwind for the company has manifested itself, this time in South Africa from government officials looking to probe into a contract which generated $1.2 billion U.S. of revenue for Bombardier in 2014.
Certainly, fighting battles domestically in Canada, as well as in the U.S., Sweden, and now South Africa should not be taken lightly by investors. The company’s reputation is on the line, and any indication of wrongdoing in any of these matters is likely to trigger negative actions from either the World Bank, or the U.S. Commerce Department, the Canadian government, or all of the above. The potential impact on the company’s already very negative free cash flows are too significant to ignore for investors.
The interesting thing to note is that the recent turmoil Canadian transportation manufacturer Bombardier has seen of late has not been reflected in the company’s share price; in fact, shares of Bombardier are trading more than 10% higher year to date and nearly 30% higher over the past 12 months. This share price appreciation has largely been linked to expectation of reduced losses moving forward and improvement within the company’s aerospace division and specifically the company’s CSeries program, a program which has yet to “take off,” to put it lightly.
Besides operational problems, a lack of managerial oversight and execution capability, balance sheet issues, and a host of other problems, the aforementioned probes into the company’s integrity is enough for this analyst to suggest extreme caution with Bombardier for those holding a position.
Invest wisely, my friends.
