MONTREAL - Bombardier's (TSX:BBD.B) efforts to manoeuvre through a global economic slowdown were shaken Thursday after the Supreme Court of Canada gave life to a lawsuit by Kuwait that could decide the fate of an aircraft order the industrial company won from Iraq.

The Montreal-based manufacturer said it would suffer financial harm if it is unable to deliver a firm order for 10 CRJ900 NextGen aircraft to Iraq with a total list price of US$398 million. The contract would rise to US$573 million if options for 10 additional aircraft are exercised.

"We could be impacted significantly by financial setbacks and layoffs if the agreement continues to be imperilled like that," spokesman Marc Duchesne said in an interview.

Bombardier last fall shipped the first of 10 CRJ900 NextGen regional jets ordered by the Iraqi government in March 2008. It was able to deliver the aircraft before a court order was reinstated preventing other planes from being shipped to the Middle East.

Duchesne wouldn't say how many of the ordered aircraft have been completed, nor where they are being kept.

On Thursday, the high court granted leave to appeal a Quebec Court of Appeal's ruling dismissing Kuwait Airways' efforts to recognize a British judgment that would allow it to seize Iraqi government assets in Canada, including two Quebec properties.

The order may have been salvaged had the court refused to hear the case.

At issue is Iraq's ability to claim jurisdictional immunity involving a foreign judgment.

Kuwait has been trying since 1990 to extract reparations from Iraq over damages arising from the first Gulf war, when Saddam Hussein's Iraqi army invaded Kuwait and occupied the small oil producing country that borders Saudi Arabia to the south and Iraq to the north and west.

Although it is listed on the Supreme Court docket as Kuwait Airways Corp. v. Republic of Iraq and Bombardier Aerospace, the company said it was an innocent third party in the case.

The recession and financial crisis have forced Bombardier to lay off more than 4,300 employees in Canada, Northern Ireland and Mexico as it reduces production of business and regional jets.

In addition to facing order cancellations and deferrals, the financial instability of some customers has forced Bombardier to cancel contracts with at least two airlines. It axed an order for Learjet 60 XR business jets worth up to US$1.5 billion following the insolvency of private European company Jet Republic. That followed the cancellation of an order for 15 remaining CRJ1000s from Italy's My Air. The original 2006 order for 19 planes was worth about US$750 million.

Karl Moore of McGill University's Desautels Faculty of Management said the ruling and potential loss of the order could have a material financial impact on Bombardier.

"There's quite a bit of money involved in terms of cash flow so that's a considerable hit during tough times and potentially they may have to a lay off a few people depending on how big the backlog is at this point," he said in an interview.

English courts ordered Iraqi Airways in 2005 to pay Kuwait Airways more than $1 billion in principal and interest. It then added the Iraqi government as a defendant for $84 million of costs, ruling it did not have jurisdictional immunity because it funded, supervised and controlled the legal battle with Kuwait Airways despite arguing the transaction was commercial within the meaning of Britain's State Immunity Act.

In October, Quebec's Superior Court dismissed the recognition of the foreign judgment and released the seizures of assets.

The deal is part of a multibillion-dollar order for 50 planes from the Canadian manufacturer and Boeing for 30 737s, the first of which are slated to be delivered in 2015.

Canadian lawyers for Kuwait Airways and the Iraqi government didn't return calls seeking comment.

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