Airbus takes stake in Bombardier

Majority share to control C Series line; U.S. assembly planned

Vapor forms on the wing of an Airbus A380 during a demonstration flight at the 2015 Paris Air Show. Airbus has agreed to buy a majority stake in Bombardier Inc.’s C Series program and will start assembling the jetliner in the U.S.
Vapor forms on the wing of an Airbus A380 during a demonstration flight at the 2015 Paris Air Show. Airbus has agreed to buy a majority stake in Bombardier Inc.’s C Series program and will start assembling the jetliner in the U.S.

Airbus has agreed to acquire a majority stake in Bombardier Inc.'s C Series program and will start assembling the jetliner in the U.S., vaulting a technologically advanced but slow-selling plane onto the front lines of the battle with Boeing over global aircraft sales.

Without putting up a dime at closing, Airbus will take just over half of a partnership controlling the C Series. The European plane-maker's marketing muscle and production expertise boost the viability of the all-new aircraft after more than $6 billion in development costs forced Bombardier to rely on government assistance.

The deal, announced Monday, also thrusts Airbus into the middle of a bitter trade spat between the Canadian manufacturer and Boeing. After a Boeing complaint that Bombardier sold 75 of its C Series jets to Delta Air Lines for "absurdly low prices," President Donald Trump's administration slapped the aircraft with import duties of 300 percent in recent weeks -- roiling U.S. relations with Canada and the U.K., where Bombardier makes the plane's wings.

In a potential effort to circumvent the tariffs, Airbus will add another final assembly line for the C Series at its factory in Mobile, Ala. The facility will serve U.S. customers and complement production in Canada, according to a company statement late Monday.

"This is a program that has been waiting for a deus ex machina, and wow, it really got one," Richard Aboulafia, an aerospace analyst at Teal Group, said in an interview. The deal casts Airbus as a global player while Boeing comes off as "a bit shortsighted and protectionist. It makes Boeing look like they've been playing tick-tack-toe against a chess master."

Airbus shares rose 2.8 percent in Paris trading, increasing the gains for the year to 26 percent and valuing the company at $72.2 billion.

"The main risk would appear to be only that Airbus gets distracted," Sandy Morris, a London analyst with Jefferies, said in a note.

Boeing shares fell less than 1 percent to close Tuesday at $258.62 in New York. The company's 67 percent advance this year through Monday leads the Dow Jones industrial average. Bombardier has climbed 9.7 percent this year. Bloomberg reported Sunday that the Canadian manufacturer is exploring options for its aerospace assets.

It's too soon to say whether the new Alabama production line would enable the C Series to avoid U.S. tariffs. The duties were applied to C Series planes "regardless of whether they enter the United States fully or partially assembled," according to a U.S. government fact sheet on the matter. Boeing said Airbus and Bombardier were just trying to get around the restrictions.

"This looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government," Boeing, the world's largest aerospace company, said in an emailed statement. "Our position remains that everyone should play by the same rules for free and fair trade to work."

Discussions with Bombardier started in August, said Airbus Chief Executive Officer Tom Enders. The Canadian company also had been in touch with a small group of Chinese state-owned enterprises about a C Series stake, said two people familiar with the talks.

Bombardier's talks with China included Commercial Aircraft Corp. of China, said one of the people, who asked not to be named because discussions were private. Commercial Aircraft Corp. declined to comment on the Airbus deal and its media relations department said it wasn't aware of any talks with Bombardier. The Canadian company declined to comment.

The Bombardier deal marks a reversal for Enders, who vetoed a similar accord just two years ago, when the future of the C Series was in doubt and Airbus was grappling with the ramp-up of its bigger A350 model. Airbus isn't interested in any other Bombardier assets, he said.

"Airbus gives the program security," he said of the C Series in a telephone interview. Whereas some customers may have wavered previously because they couldn't be sure of long-term customer support from the manufacturer, Airbus' industrial heft changes the equation, he said.

Trump and Canadian Prime Minister Justin Trudeau discussed the deal Monday evening in a phone call, according to a statement from Trudeau's office that provided no details of the conversation.

Bombardier hasn't landed a major order for the plane, which typically seats 108 to 160 passengers, since the Delta deal 18 months ago. The company values the C Series at about $2 billion, and expects the joint venture to double the value of the program, CEO Alain Bellemare said at a news conference late Monday in Montreal.

The company has agreed to provide $350 million in funding for the C Series in the first 12 months after the close of the deal, and as much as $350 million more, if required, over the two subsequent years, said Chief Financial Officer John Di Bert.

Business on 10/18/2017

Upcoming Events