MONTREAL/TORONTO (Reuters) - Quebec signaled it is open to foreign investment in Bombardier Inc BBDb.TO on Wednesday, after the Canadian plane and train manufacturer failed to sell its CSeries jet program to Airbus, potentially inviting a politically difficult deal with a Chinese investor.

A plane flies over a Bombardier plant in Montreal, January 21, 2014. REUTERS/Christinne Muschi

The failed talks were the latest blow to Bombardier, which is saddled with debt as the CSeries program limps toward commercial service next year, years late and billions of dollars over budget, jeopardizing Bombardier’s dream of entering the aviation big league on its own terms.

Asked about the possibility of foreign investment, Quebec’s Economy Minister Jacques Daoust hinted that a majority stake held by overseas interests would not be unusual.

“Look at the ownership of Quebec crown jewels that are listed on the stock exchange,” he told reporters in Quebec City. “You are going to realize that they are not majority-held by Quebecers.”

Daoust said the most important issue for him was that the company’s head office remained in Montreal.

Shares in Bombardier fell 13 percent to C$1.53 on the Toronto Stock Exchange on Wednesday, a day after Bombardier and Airbus said talks between them had ended. Reuters on Tuesday reported Bombardier had offered to sell a majority stake in the CSeries to its larger rival.

“We think Bombardier approaching Airbus is negative as it could imply serious funding or CSeries sales issues,” Canaccord analyst David Tyerman wrote in a note to clients.

The company has been struggling to sell the narrow-body jet and it has not announced a new firm order in more than a year.

Quebec is ready to help Bombardier, Daoust said, adding the company had not asked for financial help with the CSeries program.

Investissement Quebec, created by the province to provide financing for Quebec companies, loaned Bombardier C$117 million at market rates in 2009 for the CSeries program’s development.

The province may lean on the public pension plan, Caisse de depot et placement, to support the planemaker. Reuters reported last week that Bombardier had turned to the Caisse for cash.

The Caisse declined to comment on “rumors” involving financing talks with Bombardier. A spokesman reiterated the pension fund’s long-held stance that it “is independent and makes its own investment decisions.”

CHINESE INTEREST

Bombardier had already approached an unnamed Chinese company but those discussions ended three to four weeks ago, according to one source familiar with the situation.

“A deal with the Chinese seems to make the most sense, but that may be politically impractical,” said Credit Suisse analyst Rob Spingarn.

Another source in the banking industry said: “If they get the money from non-Westerners that adds another level of complexity in terms of transfer of technology.”

Any deal involving the sale of aerospace technology to Chinese buyers would likely trigger a federal government review. The federal department that rules on foreign acquisitions did not immediately comment.

“It will not be a transaction that would have an easy ride through an Investment Canada review,” said a Toronto-based competition lawyer, who asked not to be named, noting the government has spent heavily to support Bombardier’s plane sales outside Canada.

The CSeries has loaded Bombardier down with debt, spurring the company to consider asset sales or other measures to raise cash. As of June 30, Bombardier had $9 billion in long-term debt and $3.1 billion in cash, after burning through some $808 million in free cash flow in the quarter.

The company’s next bond maturity is in 2018, but liquidity fears have pushed its stock down by more than half in the last year, and the cost of insuring exposure to Bombardier’s debt has soared.

Five-year credit default swaps were quoted at 16.5 points upfront on Wednesday, meaning it would cost $1.65 million to insure $10 million of Bombardier's debt against default. For Boeing Co BA.N, which unlike Bombardier has an investment-grade credit rating, the same insurance cost $13,000.