A Bombardier Q400 NextGen turboprop airliner sits under construction in one of the hangars at the Bombardier Aerospace plant at Downsview airport, in Toronto on Tuesday, April 6, 2010.Norm Betts
Hong Kong billionaire Li Ka-shing and two Canadian investors have made Bombardier’s short list of buyers for the manufacturer’s aerospace plant and surrounding lands in northwest Toronto, according to sources familiar with the matter.
Bombardier is mulling bids from three frontrunners. Mr. Li’s CK Asset Holdings Ltd., a team-up by Toronto-based developers Great Gulf and Dream Unlimited Corp., and Montreal-based PSP Investments, the federal public service’s pension plan, are all said to be vying for the property.
But whoever wins the competition to buy the sprawling and largely empty 371-acre site could faces huge hurdles. Bombardier is facing off with its union, Unifor, which opposes the sale. And any new landowner will want to win the city’s approval to rezone at least some of the site, which is currently reserved only for uses such as factories or offices.
Nevertheless, the site is accessible by Toronto’s subway system and is seen as prime real estate in a city grappling with a shortage of land, housing and office space. It became one of the most sought-after potential development sites and attracted the attention of multiple buyers including an unsolicited bid from a startup manufacturer, Avro Bourdeau Aerospace Corp.
The Bombardier Downsview site, which includes the plant, runway and other land, is currently assessed at a value of just $153.16-million for property-tax purposes. However, sources said bids of more than $700-million have been offered.
Buyers on the short list are bidding in the belief they will develop the land into so-called mixed use − a combination of office, residential and retail spaces − which would command high prices, the sources said. The next round of bids is due before the end of the month, they said.
Dream president Michael Cooper and PSP separately declined to comment. Great Gulf’s commercial arm known as First Gulf did not comment. CK Asset Holdings could not immediately be reached for comment. Avro Bourdeau said its $800-million bid − the only one that includes preserving the airplane manufacturing business on the site − was rejected.
Future of Bombardier business
Bombardier wants to sell the Toronto property as a way to generate cash from an asset that’s not being used to its full potential. The company says it only uses about a tenth of the site and shoulders the full cost of using the two-kilometre-long runway.
“It’s an amazing piece of land,” Bombardier chief executive Alain Bellemare told analysts on the company’s earnings call in February. “We can do the same type of work somewhere else and really unlock huge value.”
Bombardier currently builds Global luxury jets and Q400 turboprop planes at the Downsview site. The Montreal-based company has raised the option of moving these manufacturing operations to Toronto’s Pearson international airport.
Proceeds from a Downsview deal and those of a recent share sale could contribute as much as US$1-billion of cash to shore up Bombardier’s balance sheet or to help buy back a minority stake in its train business from the Caisse de dépôt et placement du Québec, JP Morgan analyst Seth Seifman said in an April 13 note.
Although the land is for sale, Bombardier management has never expressed any intention publicly to sell the Q400 business itself. The unit was once considered a shaky part of Bombardier’s commercial aircraft lineup, but in recent months it has begun to see the fruits of a bolstered marketing and sales effort implemented two years ago, winning new orders from India’s SpiceJet among others.
Still, history suggests Bombardier would entertain offers for the turboprop business if they were reasonable, AltaCorp Capital analyst Chris Murray said. “You have to be realistic and remember Bombardier has sold other programs in the past as they reached maturity,” he said, including de Havilland Canada assets now owned by Viking Air Ltd. and its water-bomber business.
Avro Bourdeau also made an offer to purchase Bombardier’s regional jet business. The assembly of those jets is now done in Mirabel, Que., but Avro Bourdeau’s plan would shift that work to Downsview.
Bombardier’s rejection letter said Avro Bourdeau had no experience manufacturing airplanes and questioned the company’s ability to obtain financing. But the company’s CEO Marc Bourdeau said he interpreted the rejection letter as a negotiating tactic.
“We don’t believe that Bombardier is going to send [Q400 production] over to Pearson,” said Mr. Bourdeau, citing the costs of purchasing real estate, shifting tooling to another plant and halting production of the planes for up to a year while the assembly line is transferred out of Downsview.
Mr. Bourdeau acknowledged that his plan would require public and government support, but noted that it conforms with Toronto’s requirement that the land retain its current industrial zoning.
A Bombardier spokesman declined to answer questions about options for the Downsview site and the company’s intentions for the planes built there. “We have nothing to announce,” said Simon Letendre.
Opposition
The sale of the Toronto site will likely be the first stage of a potentially long battle at city hall. The entire area, much of which is taken up by Bombardier’s test runway or is vacant, is zoned for employment use: factories or offices.
“The employment lands, once they are gone they are gone forever,” long-time local Councillor Maria Augimeri said. “You can’t buy them back, you can’t manufacture them. And they create the base for Toronto’s economy. ”
In addition to the loss of the 3,600 aerospace manufacturing jobs, a sale could also see a new buyer scrap Bombardier’s runway, which would loosen flight-path-related building-height restrictions.
Unifor is in the midst of negotiations on a new contract, but has received no answers to its questions to the company about the future of the site and the Q400 and Global programs, Unifor president Jerry Dias said.
The current contract has a so-called work ownership clause that requires approval of the union before major changes can be made, such as Bombardier’s plan two years ago to outsource cockpit and wing assembly of the Q400.
Toronto Mayor John Tory told reporters recently that preserving the employment lands was his “going-in position” in any talks over the property, and that keeping that zoning must be the city’s “principle focus.”
Mr. Tory also said there was plenty of residential land nearby: “I don’t accept the notion that every single piece of land without exception … should be just allocated because we just decide we are going to have condo towers and apartment buildings everywhere. We need places for people to work.”
Employment lands are also taxed at a much higher rate, and they need fewer services than residential zones, making keeping them in the city important to the municipal government’s bottom line.
However, lobbying is already under way. Bombardier has hired Toronto-Dominion Bank to handle the sale. Ashley Martis, a director with TD’s real estate arm, registered as a lobbyist earlier this month and met with senior officials in the mayor’s office, senior city officials and Toronto chief planner Gregg Lintern, according to the city’s lobbyist registry.
Mr. Lintern said he outlined in his meeting with TD how complex any potential rezoning would be.
With a file from Jacqueline Nelson