Bombardier Inc. is making a final exit from commercial plane-making in a bid to preserve cash, closing the book on its money-losing, big-league dream in a deal that sees Quebec deepen its relationship with global giant Airbus SE.
The Montreal-based company, which is weighing whether to sell other assets to fix an overextended balance sheet, said Thursday it has pulled out of its joint venture with Airbus and Quebec that builds the European plane maker’s A220 single-aisle jet.
Bombardier’s proceeds from the exit are considered modest by analysts and will not have a material impact on any debt repayments.
The plane is the former C Series airliner developed by Bombardier at a cost of more than US$6-billion. It was the company’s biggest research and development effort in its history, a nearly two decades-long push funded in part by public money with the aim to put Bombardier at the cutting edge of global passenger-jet manufacturing.
Now, Bombardier is cutting ties with the venture, its last remaining commercial aircraft investment. For all the resources and money plowed into the project, it is walking away with the equivalent of about US$1.3-billion.
“The C Series was a cash drain,” Bombardier chief executive Alain Bellemare said on the company’s fourth-quarter earnings call with analysts Thursday. “The strategy was always to exit commercial aircraft while protecting jobs. We’ve done that in a very responsible manner."
Airbus will pay Bombardier about US$600-million to increase its share in the partnership to 75 per cent, from just over 50 per cent, the companies said in a joint statement Thursday. It will also relieve Bombardier of further capital commitments in the program worth US$700-million and take over Bombardier parts-making for Airbus A220 and A330 planes. Meanwhile, the Quebec government will boost its share in the venture to 25 per cent, from about 16 per cent, for no cash consideration.
Investors had been anticipating the move after Bombardier issued a profit warning last month and said it was reassessing its participation in the venture amid the prospect of a delayed break-even timeline and lower returns.
The agreement marks the official end of Bombardier’s C Series saga. In sum, the company failed to break the global commercial airliner duopoly on single-aisle airliners held by Airbus and Boeing Co. But it still engineered a plane that is envied across the industry.
The A220 is being praised by operators and travellers alike for its quiet operation, fuel efficiency and cabin features. Since taking over the jet program and Bombardier’s former employees, Airbus has generated cumulative orders of 658 A220 planes as of the end of January.
In recent weeks, Airbus had asked Bombardier to put more money into the partnership to fund a production increase. Bombardier balked and, facing a default on its joint venture obligations, a three-way agreement was worked out allowing the company to withdraw.
Premier François Legault’s government hailed the new deal as a win. The province managed to secure about 3,300 aerospace jobs while bolstering its participation in the venture without having to provide more funding beyond the US$1-billion ($1.3-billion) equity investment already made in 2015.
Under the new agreement, any new capital needed will be funded by Airbus through debt borrowed against the joint venture assets. There’s also an extension of Quebec’s participation by at least three years. Airbus will buy out Quebec’s share at a fixed date in 2026, replacing a previous call option exercisable by Airbus at any time the company wanted starting in 2023.
Quebec is losing money on the venture right now. But Pierre Fitzgibbon, provincial Economy Minister, said he is confident the program will generate returns for the province in the years ahead, as delivery of the planes accelerates.
“If anybody in the world can make this thing work it’s [Airbus],” Mr. Fitzgibbon said in an interview. “We’re giving ourselves a better chance of being in the money by staying in longer. I think the real value of the program won’t be known until 2024 or 2025.”
The terms of the new shareholding deal forced the government to take a mandatory accounting provision against future losses of $600-million, bringing the current value of Quebec’s stake in the venture to an estimated $700-million. The provision will be reviewed periodically, Mr. Fitzgibbon said.
The C Series, a narrow-body plane seating 100 to 150 people, was two years late to market and US$2-billion over budget, and Bombardier misjudged how aggressive its rivals would be in trying to undermine its success. After searching for a partner to help fund the venture, Bombardier turned to Airbus in 2018, handing over control of the program for a nominal fee.
Trying to make the C Series viable has left a lasting mark on Bombardier, saddling it with more than US$9-billion in debt and forcing it to shed assets in what now looks like a breakup playing out in slow motion. Exiting commercial aviation leaves Bombardier with two main businesses: train manufacturing and making private luxury jets.
Over the past five years under Mr. Bellemare, Bombardier has sold its water-bomber division, its Q400 turboprop unit, its CRJ regional jet franchise and its flight-training business, among other assets. The company is pursuing further options it says will allow it to pay down debt and fix its capital structure.
Bombardier provided no update on that effort Thursday, dampening investor expectations that a deal for its train division might be imminent. The company’s shares fell 1.2 per cent in afternoon trading on the Toronto Stock Exchange, to $1.55.
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