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(Reuters) – European planemaker Airbus (AIR.PA) has finalized a rescue deal for Bombardier’s (BBDb.TO) CSeries jet and is expected to flex its marketing and cost-cutting muscle to revive the loss-making Canadian venture.
Bombardier agreed in October to sell Airbus a 50.01 percent stake in its flagship commercial jet for a symbolic Canadian dollar, after sluggish sales and low production rates prevented it from keeping a lid on costs.
Airbus, by contrast, will be able to offer airlines deals by packaging the CSeries with its own jets in a challenge to Boeing (BA.N) and is expected to use its industrial power to slash the price of parts, along with improving efficiencies internally.
After winning regulatory approvals and agreeing the deal’s fine-print in Montreal late on Thursday, the two companies said they were ready to start the new tie-up formally from July 1.
They confirmed outlines of a historic shift in the aircraft industry agreed in October, with Bombardier abandoning its standalone bid to enter the main jet market dominated by Airbus and Boeing, in exchange for a stake in a stronger project.
Bombardier will retain 31 percent and Investissement Quebec, run by the province of Quebec, will hold 19 percent.
Announcing federal government approval, Canadian Innovation Minister Navdeep Bains said Airbus had committed to maintaining Mirabel outside Montreal as the primary CSeries industrial site, where more than 2,000 Quebec aerospace workers rely on the jet.
Airbus also plans to expand its Mobile, Alabama, assembly plant to include a new line capable of handling four CSeries a month for the U.S. market. It said work would begin next year.
The first priority will be to secure plans for production increases that include a doubling of deliveries this year. Aerospace supply chains are tight because of high jet demand.
“We will be very focused on having a robust ramp-up and a steep ramp-up in the future years,” Philippe Balducchi, head of the new CSeries partnership, told reporters.
Bombardier will continue for the time being to fund the investments needed to support the production increase up to certain agreed financial levels, beyond which any cash shortfalls will be shared by the main partners.
“Looking forward, I’m very confident that CSeries is going to contribute positively to the cash generation of Airbus in the future,” said Airbus Finance Director Harald Wilhelm.
BOMBARDIER UPDATES GUIDANCE
Closing the deal allows Bombardier to shed CSeries losses, while Airbus is betting that its ability to negotiate cuts in the cost of parts will help to put the program in the black.
Bombardier raised its guidance for 2018 consolidated earnings before interest and tax by $100 million to a range of between $900 million and $1 billion, to reflect the separation of the loss-making CSeries.
Bombardier also said it was cutting its revenue target by $500 million to $16.5-17 billion. The CSeries will no longer be consolidated in its results from July 1.
The deal was first announced at a time when Bombardier was locked in a trade dispute with U.S. planemaker Boeing (BA.N).
That dispute ended in March when Boeing said it would not appeal a ruling that overturned plans to impose hefty duties on the CSeries in the United States.
Boeing is now holding its own tie-up talks with Bombardier’s Brazilian rival Embraer SA (EMBR3.SA).
The closing coincided with the opening of a G7 summit at which Europe and Canada are expected to take a common stand against the United States on trade, but company officials denied any link between current those tensions and the plane tie-up.
Additional reporting by Parikshit Mishra in Bengaluru and Tim Hepher and Cyril Altmeyer in Paris; Editing by Amrutha Gayathri and Patrick Graham
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