Airbus and Bombardier Ink 20-Year Passenger Jet Partnership -- 2nd Update
October 16 2017 - 9:46PM
Dow Jones News
By Jacquie McNish and Paul Vieira
TORONTO -- In a major retreat for Canada's flagship
transportation company, Bombardier Inc. said Monday it had agreed
to a joint venture with Airbus SE for its most important
commercial-jet business in the wake of a crippling tariff ruling by
the U.S. and sluggish sales for the aircraft.
The companies said Airbus would acquire a 50.01% stake in
Bombardier Inc.'s CSeries jets. Airbus CEO Tom Enders said the
company was not investing any money upfront for its majority stake,
but it will provide ongoing funding support.
When the partnership deal closes, Bombardier will be left with a
31% stake in the CSeries, a major concession following the
company's billions of dollars of investment and decade-long
development an aircraft line, meant to strengthen its position in
the global aerospace sector.
The proposed deal would intensify competition between the Airbus
and Boeing Co. and potentially inflame a trade dispute between the
U.S. and Canada over alleged state subsidies to Bombardier by
having some Canadian-developed jets assembled on American soil. The
commerce department's preliminary decision to hit Bombardier with
tariffs that would quadruple the price of a CSeries aircraft in the
U.S. came after Boeing complained of predatory pricing.
The deal would also mark the biggest shakeup in the commercial
jet market since Boeing bought rival McDonnell Douglas in 1997,
marrying two rivals even as new challengers emerge in China and
Russia.
Canada's Innovation Minister, Navdeep Bains, said in a statement
the Airbus-Bombardier pact would be subject to a review under the
country's foreign-investment laws. Under Canadian law, the
government reserves the right to reject a foreign takeover or
investment if officials deem the transaction would not bring a
substantial benefit to the economy.
However, Mr. Bains said that "on the surface," the Airbus deal
for Bombardier's CSeries "would help position the C Series for
success by combining excellence in innovation with increased market
access and an unrivaled global sales force."
Canada's Trade Minister, Francois-Philippe Champagne, went
further, telling reporters Monday night the deal could "save" the
Canadian aerospace sector, which employs over 200,000 people across
the country -- including many in the politically-important greater
Montreal region.
Canada has been a crucial backer of the CSeries. It provided
financial assistance earlier this year to Bombardier, in terms of a
C$372.5 million loan, to help the company develop the CSeries and
Global 700 aircraft. However, the federal financing was short of
the initial demand from Bombardier for a $1 billion lifeline.
If the new CSeries partnership experiences a cash shortfall,
Bombardier has agreed to inject up to $350 million of cash in the
first year of operation. If the shortfall continues during the
second and third year, Bombardier has agreed to supply additional
funds. In exchange for the cash Bombardier, will receive
additional, but non-voting shares, in the partnership.
Bombardier's CEO Alain Bellemare said the partnership will allow
the company to sidestep heavy tariffs imposed by the U.S.
government in recent weeks over allegations that it selling CSeries
planes at below market prices. Airbus plans to expand its jet
production facilities in Alabama to build CSeries jets for U.S.
buyers.
"This is exactly the right thing for the C-series," said Mr.
Bellemare to reporters Monday night. "We will be producting more C
series to deliver to customers around the world."
Although many people familiar with the deal said the Boeing
action spurred the talks, Mr. Bellemare denied it was the primary
motivation.
"We're doing this deal because is the right strategic deal for
Bombardier," he said. But he added that having access to Airbus's
Alabama plant allows the company to skirt the tariffs, because any
planes assembled there will be deemed a domestic product in the
U.S.
Delta Airlines Inc. has ordered 75 CSeries aircraft which are
set to start deliveries next spring.
Mr. Enders said Airbus' investment brings certainty to the
future of a jet series that has not been able to land a new order
since last December. Bombardier's share price has fallen steadily
in the past year over concerns about the company's heavy debts and
continued losses.
Customers would "love to buy the CSeries but have so far held
back because they were not entirely sure of the program," he
said.
Airbus and Bombardier discussed a CSeries alliance more than two
years ago, but Mr. Enders said talks broke off because the new jets
had not yet been certified. "This was the right time," he said.
The loss of control to Airbus is a blow to Bombardier's
controlling families, which over a decade ago bet the future of the
company on a new line of fuel efficient narrow body jets. Frequent
product delays, equipment problems allowed Bombardier competitors
such as Airbus and Boeing to beat the company to the market with
similar aircraft.
--Doug Cameron and Vipal Monga contributed to this article
Write to Jacquie McNish at Jacquie.McNish@wsj.com and Paul
Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
October 16, 2017 21:31 ET (01:31 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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