MONTREAL – One of Bombardier’s largest Canadian rail customers has threatened to cancel a contract over continued delays in delivering a prototype train in Toronto, handing another blow to the beleaguered company.
Metrolinx ramped up pressure on Bombardier by issuing a formal notice of intent to terminate its $770-million contract after the company missed a commitment to deliver a prototype by the end of last month.
Ontario’s regional transportation agency said it may not cancel the contract, but took the required steps should it need to ask a court to rip up the deal.
“We will continue to work with Bombardier on this issue and we will deliver on our transit commitments,” Metrolinx spokeswoman Anne Marie Aikins said.
The light rail transit cars are part of a contract signed in 2010 and are to be used on various LRT lines in Toronto, including the $5.3-billion Eglinton Crosstown, that is scheduled to open in 2021.
The focus on the pilot vehicle has been “blown out of proportion,” Bombardier (TSX:BBD.B) said.
“Bombardier is in no way in default of its contractual obligations in this project,” spokesman Marc-Andre Lefebvre said.
“We have a contract to deliver and supply 182 cars and that is what we are going to do.”
Bombardier has acknowledged that its performance has disappointed the public and its customer, but the company said it has taken steps to rebuild trust.
Production of the railcars isn’t set to begin until early 2018.
“Everyone understands how high the stakes are here,” Ontario Transportation Minister Steven Del Duca said Friday, noting the province’s long history with Bombardier.
While the contract is relatively small for Bombardier, industry observers say continued delays, coupled with delivery problems with Toronto streetcars, raise the public’s concern about the company as it is seeking US$1 billion in assistance from the federal government.
“At the best of times there’s a lot of skepticism around government support of Bombardier,” said analyst Chris Murray of AltaCorp Capital. “It is not helpful that you have these distractions.”
Bombardier has also struggled with delays and cost overruns for its CSeries commercial jet program. Last month, it announced plans to lay off 7,500 workers around the world, mainly in the rail division.
McGill University management professor Karl Moore said the ongoing rail challenges make people a little nervous about giving funding to a firm that appears incompetent.
But David Tyerman of Cormark Securities doubted the delays will tarnish the reputation of one of the world’s largest train manufacturers. While Bombardier may face more scrutiny from customers, he said all manufacturers face problems.
“I don’t think anybody is completely clean on these things.”
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