Airbus Seals Bombardier C Series Deal in Challenge to Boeing

(Bloomberg) -- Airbus SE firmed up plans to assume control of Bombardier Inc.’s C Series and start building the cutting-edge jetliner in the U.S., ushering in a new era for an aircraft with a spotty sales record.

The European planemaker will hold a majority stake in the partnership, with the deal set to close on July 1, according to a statement on Friday. It will start building a C Series plant in Alabama next year, with its first planes set for delivery in 2020, Philippe Balducchi, the program’s chief executive officer, told reporters.

Airbus’s takeover of the C Series sharpens a clash with Boeing Co. for dominance in the lucrative market for single-aisle jetliners. Bombardier CEO Alain Bellemare has predicted that C Series sales will accelerate because of Airbus’s marketing reach, while costs will drop thanks to the European planemaker’s clout with suppliers. Boeing is seeking to forge a commercial-aircraft alliance with Brazil’s Embraer SA, Bombardier’s main competitor.

With final details worked out over how C Series revenue will be shared with Airbus, Bombardier lowered its revenue forecast for the year.

Canada’s biggest aerospace company designed the C Series to crack the Boeing-Airbus duopoly in single-aisle commercial aircraft. But the Montreal-based manufacturer was more than two years late and about $2 billion over budget in developing the plane.

Trade Fight

Bombardier struck the deal with Airbus in October amid a trade dispute in the U.S. with Boeing, which complained the Canadian plane had received illegal government aid that helped it undercut competitors in a sale to Delta Air Lines Inc. Bombardier prevailed in January when the U.S. International Trade Commission ruled that American industry wasn’t being harmed by the C Series.

Bombardier spent more than $6 billion to develop the C Series after launching it in 2008, equipping the aircraft with fuel-efficient engines, large windows and a wider-than-usual middle seat. Passenger capacity ranges from 108 to 160, a step up in size from Bombardier’s signature regional jets.

In exchange for taking control of the plane program, Airbus agreed to provide procurement, sales and marketing expertise to the C Series Aircraft Limited Partnership, the entity that manufactures and sells the jet. Airbus executives have said they would look to extract savings from all C Series suppliers to lower the program’s production costs. All regulatory approvals have been obtained.

Airbus shares climbed 1.2 percent to 100.86 euros at 2:06 p.m. in Paris. The stock had climbed 20 percent this year through Thursday. Toronto trading hadn’t yet opened for Bombardier, which had advanced 62 percent this year.

Quebec HQ

Airbus has pledged to keep the headquarters and primary assembly of the C Series in Mirabel, Quebec. The companies’ secondary plant in Alabama -- next to an existing Airbus facility in Mobile that builds the A320 narrow-body -- will probably build four aircraft a month, said Balducchi, the C Series chief.

“We want to respond to demand in the U.S.,” he said. “We expect to fill the two assembly lines as quickly as possible, and we will see whether we have to further ramp up in both sites going forward.” He cautioned that supply-chain issues could constrain the ability to speed output.

In the event of cash shortfalls, Bombardier had agreed to provide funding of up to $700 million for the C Series over the three years that follow the closing. The final agreement adds $225 million to that total, and increases the period to 3 1/2 years.

Revised Outlooks

Ceding control of the C Series will force Bombardier to remove the program from its results. The company on Friday forecast full-year revenue of $16.5 billion to $17 billion, $500 million less than previously expected. It predicted earnings before interest, taxes and special items of $900 million to $1 billion, $100 million more than previously expected. Bombardier will record a net accounting charge of about $500 million in the second quarter.

Air Baltic’s order for 30 C Series jets, announced last month, brings to 402 the number of firm commitments for the aircraft’s two variants.

“The C Series program continues to ramp up,” the companies said in the statement, adding that deliveries are expected to double this year from 17 aircraft in 2017.

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson

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