Acquisition Of Bombardier Transportation Turns From Sour to Bitter as Alstom Files for Arbitration

Narrow-moat Alstom has filed a request for arbitration against Bombardier to the International Chamber of Commerce regarding its purchase of the former Bombardier Transportation business for EUR 5.5 billion. The claim relates to the alleged breach of certain contractual provisions of the sale and purchase agreement. Alstom did not provide further specifics, but we suspect it is due to the lack of predeal disclosure by Bombardier of the extent of problematic contracts. We expect more negative announcements, which will affect profitability and cash flow. The group reported free cash outflow of about EUR 1.5 billion at its first-half 2022 results relating to legacy Bombardier contracts and expected that free cash flow will return to a neutral position by the second half, which we view as an unlikely target.