By Jacquie McNish, Doug Cameron and Paul Vieira
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 17, 2017).
TORONTO -- Plane maker Airbus SE announced plans to partner with
Bombardier Inc. in what could be the biggest shake-up of the
commercial jetliner business in 30 years, challenging a crippling
tariff ruling pushed by Boeing Co. and the U.S. despite sluggish
sales of a Canadian-made aircraft.
Bombardier and Airbus said Monday that in August they rekindled
failed talks dating several back years and that the European
company planned to take a majority stake in a joint venture to
market Bombardier's CSeries jets. The pact included assembly of the
plane in the Mobile, Ala., but wouldn't affect employment in
Bombardier's main Montreal plant.
Airbus Chief Executive Tom Enders said the company wasn't
investing upfront for its majority stake in the venture, which he
said would allow sales to U.S. airlines without the 300% tariff
proposed for CSeries imports by American trade authorities.
Delta Air Lines Inc, which has ordered 75 of the planes, last
week said it would take them but didn't expect to pay any tariffs.
Delta said it may have to delay some deliveries.
Mr. Enders said on a media call that the "stars aligned"
compared with earlier unsuccessful talks as the CSeries was now
approved to fly and other Airbus programs were on track.
The proposed deal would intensify competition between Airbus and
Boeing 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.
"This looks like a questionable deal between two heavily
state-subsidized competitors to skirt the recent findings of the
U.S. government," Boeing said in a statement.
The U.S. 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. A final decision is expected next year.
The Airbus-Bombardier deal was also a topic of conversation in a
phone call Monday between President Donald Trump and Canadian Prime
Minister Justin Trudeau, according to a summary of the conversation
provided by the Canadian leader's office. The readout said the two
leaders discussed the transaction but provided no further details.
During his trip to the White House last week, Mr. Trudeau said he
told Mr. Trump that he "vehemently" disagreed with the Commerce
Department's tariff decision against Bombardier.
The terms would see Bombardier hold a 31% stake in the CSeries,
a major concession following the company's billions of dollars of
investment and decadelong development of an aircraft line, meant to
strengthen its position in the global aerospace sector.
It would also mark the biggest shake-up in the commercial jet
market since Boeing bought rival McDonnell Douglas in 1997,
marrying two rivals even as new challengers emerge from China and
Russia.
Canadian Innovation Minister Navdeep Bains said 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 wouldn't 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 CSeries for
success by combining excellence in innovation with increased market
access and an unrivaled global sales force."
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 ($297.6 million), to help the company develop
the CSeries and Global 7000 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 nonvoting shares, in the partnership.
Bombardier CEO Alain Bellemare said the partnership would 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 CSeries," said Mr.
Bellemare to reporters Monday night. "We will be producing more
CSeries 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 it 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.
Mr. Enders said Airbus's investment brings certainty to the
future of a jet series that hasn't 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 and equipment problems allowed Bombardier
competitors such as Airbus and Boeing to beat the company to the
market with similar aircraft.
--Vipal Monga contributed to this article
Corrections & Amplifications Canada provided Bombardier with
financial assistance to help the company develop the CSeries and
Global 7000 aircraft. An earlier version of the story incorrectly
identified the Global 7000 as the Global 700. (Oct. 16, 2017)
Write to Jacquie McNish at Jacquie.McNish@wsj.com, Doug Cameron
at doug.cameron@wsj.com and Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
October 17, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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