Bombardier's Geopolitical Problems: Zhuzhou Will End Up in Montreal

Includes: BDRAF, ZHUZF
by: George Gutowski

Bombardier (OTCQX:BDRAF) ran into some geopolitical problems with CSR Zhuzhou Electric Locomotive Co. Ltd (OTCPK:ZHUZF) threatening legal action unless the new Montreal Metro contract was re-opened for bidding. They have promised to build locally in Montreal. As best we can determine, Zhuzhou is owned by the Chinese Government and operates very similarly to a government owned corporation. They have significant manufacturing experience in China but the promised plant in Montreal would be brand new.

Bombardier has long been winning contracts in China and now the Chinese are becoming free traders and want to walk through the looking glass.

If Zhuzhou establishes a plant in Montreal, will they be able to export to other parts of the world? Will the US tolerate a Chinese manufacturer in Montreal under the current free trade agreement? How is this different from Toyota (NYSE:TM) establishing a world scale plant in Canada and exporting to the US? Which they do.

The end game deal will mostly require Bombardier to bring in Zhuzhou in the future. Bombardier is wounded financially and can use the capital that Chinese entities bring with them.