Airbus Agrees To Take Majority Stake in Bombardier C Series
Airbus has agreed to take a majority stake in the Bombardier C Series program. Under the terms of a contract signed recently, Airbus will take a 50.01 percent stake in the C Series Aircraft Limited Partnership (CSALP), while Bombardier and the Quebec provincial government retain 31 percent and 19 percent, respectively.
CSALP’s headquarters, primary assembly line, and related functions will remain in Québec, expanding Airbus’s industrial footprint with the final assembly line in Canada and C Series production at Airbus’s manufacturing site in Mobile, Alabama.
Airbus CEO Tom Enders said that discussions began in August, well ahead of the U.S. Commerce Department’s preliminary ruling to impose up to 300 percent worth of tariffs on Bombardier’s sale of 75 CS100s to Delta Air Lines at the behest of Boeing. The duties would effectively disqualify the C Series from sale in the U.S., removing the biggest market from Bombardier's available pool of potential customers. The eventual manufacture of the C Series in the U.S. could theoretically remove that barrier to sale there.
However, Bombardier CEO Alain Bellemare denied that the Commerce Department case motivated the agreement, notwithstanding his acknowledgment that, in fact, domestically produced aircraft in the U.S. would not fall subject to any tariffs. “It’s very clear that we’re not circumventing anything here,” said Bellemare. “[But] the fact is when you produce an aircraft in the U.S. it is not subject to any import duty under the current U.S. rules.” Enders agreed, adding that the European company hasn’t yet decided whether the Mobile facility would export the C Series outside the U.S.
Although he said the companies haven't definitively committed to building Delta's CS100s in Mobile, Bellemare also said the option "is on the table," meaning the airline would need to agree to reschedule first deliveries for some time beyond the current spring 2018 target. "They [Delta] have been very clear that they love the aircraft and that they'd be willing to wait to get the C Series," he reported. "Now that we have the deal announced we'll [engage] in more indepth discussion with Delta. But we feel confident that they will be waiting for the right solution." Enders added, however, that Airbus could establish C Series production in what he termed a relatively short period of time.
While the addition of the C Series certainly adds value to Airbus's product portfolio, it also appears likely to spell the end of further efforts to sell the A319, whose seating capacity overlaps with that of the CS300. "We haven't sold any A319s since 2012," said Enders. "That says it all."
Under the deal, Airbus will enter into commercial agreements related to C Series sales, marketing, and procurement management, including leading negotiations to improve supplier agreements and customer support. At closing, expected in the second half of 2018, none of the program partners will contribute any cash.
“Airbus is bringing tremendous value to the program,” said Bellemare. “They are clearly endorsing the C Series, they are bringing supply-chain expertise, they have an amazing marketing network and a great aftermarket support organization that is unleashing so much value that we expect to more than double the current value of the program.”
Bombardier and Airbus attempted to reach a similar agreement in 2015, but the deal fizzled when Airbus’s due diligence failed to find a compelling case for it. In this case, Enders quipped that “the stars were aligned this time.”
“It’s an entirely different situation that it was two or three years ago,” said Enders. “At the time I think there was no certified C Series; now we have the CS100, the CS300 certified. At the time, looking at our own burdens and challenges, we didn’t have the A320neo, we didn’t have the A350 ramp up going well...so with the achievements we've made and the achievements that Bombardier has made with the C Series, that decision was far easier to take for us.”