Montreal/ Paris: Airbus SE agreed on Monday to buy a majority stake in Bombardier Inc’s CSeries jetliner program, grabbing control of a struggling competitor at the second attempt and giving the Canadian plane-and-train-maker an unexpected boost in its costly trade dispute with Boeing Co.
The deal, which would come at no cost for Toulouse, France-based Airbus, would give the European planemaker a 50.01 percent interest in CSeries Aircraft Limited Partnership, which manufactures and sells the jets, the companies said.
While Bombardier will lose control of a plane program developed at a cost of $6 billion, it gives the CSeries improved economies of scale and a better sales network. The 110-to-130 seat plane has not secured a new order in 18 months and is being threatened by a possible 300 percent duty on U.S. imports.
Bombardier said the partnership should more than double the value of the CSeries program.
“Bombardier no longer has control of this jet, but then again, it’s better to have a 30 percent share of a very successful program than to struggle with a highly risky program that was perhaps too big for them from the start,” said aerospace analyst Richard Aboulafia.
Canadian Innovation Minister Navdeep Bains, who must decide whether to approve the deal, said in a statement that “on the surface, Bombardier’s new proposed partnership ... would help position the CSeries for success”.
Airbus Chief Executive Tom Enders said the company has offered to assemble some of the narrowbody jets at its U.S. plant in Alabama for orders by American carriers.
The U.S. assembly line would mean the jets would not be subject to possible U.S. anti-subsidy and anti-dumping duties of 300 percent, Bombardier Chief Executive Alain Bellemare said on a media conference call.
Bellemare called the deal with Airbus, which was first attempted unsuccessfully in 2015, a “strategic” decision that is expected to close in the second half of 2018.
“We’re doing this deal here not because of this Boeing petition. We are doing this deal because it is the right strategic move for Bombardier,” Bellemare said, referring to Boeing’s complaint that the Canadian firm received illegal subsidies and dumped CSeries planes at “absurdly low” prices.
A Boeing spokesman dismissed the agreement as a “questionable deal between two state-subsidized competitors” to try to skirt a recent U.S. trade finding against the CSeries.
In February, the Canadian government announced C$372.5 million ($297 million) in repayable loans for the CSeries and another Bombardier jet program.
The Airbus investment does not place any more financial burdens on Ottawa, two sources close to the case said on Monday.
The sources, who requested anonymity because they were not authorized to speak to media, also said the deal would have no effect on a separate dispute between Canada and Boeing over a proposed purchase of 18 Super Hornet jets.
The government has frozen contacts with Boeing’s military wing until the company drops its challenge against the CSeries.
Bombardier said the deal would not result in job losses and would keep the head office in Montreal. Unions said the deal would benefit the program.
“Ultimately, the U.S. actions have created a stronger Bombardier,” said Jerry Dias, president of Unifor, which represents some of Bombardier’s unionized workers in Canada.
The Boeing-Bombardier dispute has snowballed into a bigger multilateral trade dispute, with British Prime Minister Theresa May asking U.S. President Donald Trump to intervene in order to save British jobs.
Bombardier is the largest manufacturing employer in Northern Ireland, which is the poorest of the United Kingdom’s four constituent parts and remains mired in political sensitivities after emerging from decades of armed sectarian conflict.
Boost for Belfast
On Monday, the leader of the Northern Irish party propping up Britain’s minority government said the Airbus was “incredibly significant news” for Belfast.
Talks for the deal between Airbus and Bombardier first started in August. Enders said the deal was different from an earlier round of talks in 2015, when he abruptly ordered an end to negotiations. He said the CSeries’ has since been certified, entered service and was performing well.
“It’s an entirely different situation,” he said.
Delta Air Lines Inc (DAL.N), which ordered 75 CSeries planes, said after the announcement that it looked forward to introducing the planes into its fleet.
Under the deal, Bombardier will own about 31 percent, while Investissement Québec, the investment arm of the province of Quebec, will hold 19 percent. In 2015, Quebec took a 49 percent stake in the CSeries program for $1 billion, although its stake was more recently diluted to 38 percent.
Quebec’s largest pension fund, which holds a 30 percent stake in Bombardier’s rail division, said the decision strengthened the company and improved its growth prospects.
Bombardier is in the middle of a five-year turnaround plan after considering bankruptcy because of a cash-crunch as it developed multiple plane programs simultaneously, including the CSeries.
The deal also provides Airbus warrants exercisable to acquire up to 100 million Class B Shares of Bombardier.
Airbus will provide procurement, sales and marketing, and customer support expertise to CSALP, the companies said.
There will be no cash contribution by any of the partners, nor will CSALP assume any financial debt, they added.
Bombardier expects a $400 million loss in commercial aircraft this year, but has set a breakeven target for 2020.
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Updated Date: Oct 17, 2017 13:47:56 IST