Airbus strikes a major deal with majority stake in Bombardier CSeries program
The airline industry took a huge rumble, as European aircraft giants—Airbus Group, completed a major deal by buying a majority stake in Bombardier’s CSeries program.
In a deal that was announced in Monday, the two manufacturers entered into a partnership just some weeks after the U.S. made an announcement that enforces 300 percent preliminary duties on exports of aircrafts manufactured by Airbus. This was after rival company Boeing had filed a complaint.
The deal would ensure that planes are assembled in the U.S. to avoid import duties. This would also result in achieving significant CSeries production costs savings, as they would instead be leveraging Airbus’s global supply chain expertise. The deal though doesn’t mean the company has to gulp up Bombardier’s (TSX:BBD.B) significantly large debt, or pay a sum for the acquired stake.
50.1 per cent interest would be apportioned to Airbus in the CSeries Aircraft Limited Partnership. The partnership covers the manufacturing and selling of aircrafts, though in exchange for the access to Airbus’s sales, logistics, procurement, and support expertise.
The Quebec government investment agency is also a stakeholder, but will now hold 19 per cent—a downgrade form a previous 45 per cent, after it invested US$1 billion into the program. Bombardier will now own 31 percent, making Airbus the majority stakeholder.
CEO of Bombardier, Alain Bellemare said partnering with Airbus was the perfect choice for them—in a deal that can allow Airbus buy out Bombardier after seven and a half years, and Quebec government in the year 2023.
“Combining the CSeries with Airbus’s global scale creates a remarkable business, and together we will take the CSeries program to new heights,” he said during a conference call.
He cited that there is bound to be a massive boost in sales due to the partnership with Airbus, and that it would be great for the CSeries program—as it’s bound to more than double its value.
“It brings certainty to the future of the program so it increases the level of confidence that the aircraft is there to stay, which means that we will increase volume.”
A government source said that, the government regards the Airbus deal as a great move for the CSeries—which would not only guarantee it staying afloat, but also experiencing massive boost.
This new partnership though might stir some debates, as a European company has now taken over the Canadian brand.
Certainly Bombardier’s hierarchy wouldn’t mind, as they were embroiled in immense financial and trade challenges—prompting Chief Executive of Airbus, Tom Enders, to call it a “win-win for everybody.”
“Our partnership will accelerate the commercial success and it will ensure that the program comes into a position to realize its full potential,” he said from Europe.
Enders said the partnership is bound to secure industrial operations in Canada, Britain and China, and create new employment opportunities in the U.S.
It’s worthy of note that the two companied failed to reach an agreement few years ago, but Enders said that things are a lot different now—as theCSeries is now certified and recognized by its customers, as a “great plane” capable of expanding its narrow body product line—citing that for years, the Airbus hasn’t made an A319 that sizes up to the CSeries.
Unlike when talks between the companies failed a few years ago, Enders said the CSeries is certified and recognized by customers as a great plane that can expand its narrowbody product line. He noted that Airbus hasn’t made an A319 the size of the CSeries for years.
The deals means Canada would become Airbus’s fifth home country and first outside Europe, as the CSeries headquarters and main assembly line will remain in the Montreal area.
A production line would also be setup at Airbus’s Alabama facility to meet up with the demands from their U.S. customers and equally avoid import duties.
Employees at the Mirabel plant can heave sighs of relief, as the company has promised to retain everyone and increase the current production rate.
“Certainly this makes a much, much stronger program and certainly more competitive against anything Boeing would want to offer,” said industry analyst Chris Murray of AltaCorp Capital—remarking that Boeing and Embraer are bound to be the biggest losers.
A Boeing spokesman said in a statement that the partnership represents a “questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government.”
“Our position remains that everyone should play by the same rules for free and fair trade to work.” He continued.
Minister of economy, science and innovation in Quebec, Minister Dominique Anglade said in a press release that: “In the current context, the partnership with Airbus is, for us, the best solution to ensure the maintenance and creation of jobs in this strategic sector of the Quebec economy,” she stated in a news release.
Federal Minister Navdeep Bains also lent his voice on the matter in a different press release, stating that the deal will be reviewed by the government under the Investment Canada Act.
“On the surface, Bombardier’s new proposed partnership with Airbus on this aircraft would help position the CSeries for success by combining excellence in innovation with increased market access and an unrivalled global salesforce.” He said.