European aircraft giant Airbus Group is shaking up the global airline business by buying a majority stake in Bombardier’s CSeries program and assembling the plane in the U.S. to avoid import duties.
The two aircraft manufacturers announced the partnership Monday evening, weeks after the United States announced 300 per cent preliminary duties on exports of the aircraft following a complaint from Airbus rival Boeing.
The partnership is expected to result in significant CSeries production costs savings by leveraging Airbus’s global supply chain expertise, but the company won’t be paying any money for the acquired stake or absorb Bombardier’s (TSX:BBD.B) large debt.
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Airbus will acquire a 50.01 per cent interest in the CSeries Aircraft Limited Partnership, which manufactures and sells the plane in exchange for access to Airbus’s sales, logistics, procurement and support expertise.
Bombardier will own 31 per cent and the Quebec government’s investment agency will hold 19 per cent, down from 49.5 per cent when it invested US$1 billion in the program.
Airbus can buy out Bombardier after 7.5 years and the Quebec government in 2023.
Bombardier CEO Alain Bellemare said Airbus is the perfect partner.
“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 in a conference call.
He said the partnership should more than double the value of the CSeries program by accelerating sales momentum.
“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.”
The way the federal government sees it, the Airbus takeover gives the CSeries a real chance at not just surviving, but making it big, said a government source.
Although there will be debate over the “symbolism” of a Canadian product now being controlled by a European company, the alternatives were not promising, given Bombardier’s financial and trade challenges.
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Airbus chief executive Tom Enders called the partnership 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.
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Enders said the partnership will secure industrial operations in Canada, Britain and China, and bring new jobs to the U.S.
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.
With this deal, Canada would become Airbus’s fifth home country and first outside Europe.
The CSeries headquarters and main assembly line will remain in the Montreal area, but a second production line for the 100- to 150-seat plane will be set up at Airbus’s facility in Alabama to meet demand from U.S. customers and avoid duties.
Airbus has promised to maintain 100 per cent of those employed Mirabel, Que., and to keep production at the Mirabel plant, where production will be ramped up far beyond its current rate.
The union representing many Bombardier workers said it’s too early to celebrate even though Airbus’ stake could strengthen the CSeries.
“It is a sad day that a high-tech Canadian treasure is ending up in European control, but we can take some satisfaction that the CSeries is getting some needed stability,” said Unifor National President Jerry Dias.
“The attempt to weaken Bombardier has pushed it to join with one of its competitors, which should not have had needed to happen,” Dias said. “Ultimately, the U.S. actions have created a stronger Bombardier.”
Even though talks began in August, months after Boeing challenged government subsidies to Bombardier, Enders said the partnership wasn’t motivated by the trade dispute.
“It was motivated by the clear recognition that the stars were kind of all aligned this time,” he said.
Bellemare added the companies aren’t circumventing anything by joining forces. He added that Delta Air Lines is prepared to wait for delivery of its planes to avoid duties.
“When you produce an aircraft in the U.S. it is not subject to any import duties under the current U.S. rules.”
Even though some assembly work will be done in the United States, Bellemare believes more jobs will be created in Quebec because Airbus will help to augment sales.
The big losers are Boeing and Brazil’s Embraer, said industry analyst Chris Murray of AltaCorp Capital.
“Certainly this makes a much, much stronger program and certainly more competitive against anything Boeing would want to offer,” he said.
Boeing described the partnership as 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,” spokesman Dan Curran said in a statement.
Quebec economy, science and innovation Minister Dominique Anglade said the strategic partnership will ensure the sustainability of the CSeries and consolidate Quebec’s aerospace cluster.
“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 said the government will review the deal under the Investment Canada Act due to the significant proposed investments in Canada by non-Canadians.
“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 stated in a separate news release.
