Bombardier Inc. is in talks to sell its Canadair Regional Jet line to Japan’s Mitsubishi Heavy Industries Ltd. in a deal that would bring to a close the Montreal plane maker’s commercial-aviation ambitions after a three-decade expansion.
Canada’s biggest transportation manufacturer confirmed in a statement Wednesday it is in discussions with Mitsubishi on its CRJ program but declined to comment on the nature of the talks. Mitsubishi also confirmed talks are underway but provided no details.
The discussions centre on a sale, said a person familiar with the situation who was granted anonymity because they were not authorized to speak publicly about the negotiations.
The CRJ family is Bombardier’s last remaining line of commercial airplanes. Divesting the business would mark the end of 33 years of commercial aerospace history that began when the company bought Canadair from the Canadian government in 1986 for $120-million.
Celebrated as the planes that launched Canada into commercial aircraft manufacturing in the 1990s, the CRJ program has been largely neglected in recent years as Bombardier concentrated its resources on bringing the C Series airliner to market. The plane maker has won firm orders for more than 1,900 CRJ aircraft, but sales have slowed and the company now loses money on each unit it builds.
Industry experts say Bombardier made a strategic error in pushing ahead with the larger C Series instead of developing an all-new regional jet to replace the aging CRJ. The company never had sufficient resources to market and support the C Series aircraft and compete with giants Boeing and Airbus, according to trade publication Aviation Week. Bombardier has since handed control of the C Series to Airbus.
The CRJs are small and narrow regional jets seating between 50 and 104 passengers with a maximum range of roughly 3,000 kilometres. The CSeries, rebranded as the A220, are larger planes that can fly twice that distance and designed specifically for the 100 to 150-seat market.
Others say Canada’s ambivalence about supporting a domestic aerospace industry also plays a role. The world’s commercial airline business is dominated by international players that enjoy tens of billions of dollars in backing from their national governments, and although Bombardier has won taxpayer support over the years, Canada hasn’t committed that level of support, says Mehran Ebrahimi, an aerospace specialist and professor at the University of Quebec at Montreal.
“This is sad but it was inevitable,” Prof. Ebrahimi said, adding Canada is a victim of its own contradiction. “Canadians say they want an aerospace industry but they don’t want to commit the significant sums of public money required to fund it. We’ve never made that collective choice.”
Bombardier’s management still needs to complete additional review and analysis before sending the matter to the board for approval and Mitsubishi also has to complete its due diligence review and approval process, Bombardier said. An agreement is not certain, the company said.
The plane maker had said it was exploring strategic options for its CRJ line, which was orphaned after Bombardier handed control of its C Series airliner program to Airbus SE and sold its turboprop business to Canada’s Viking Air. It is now widely expected to get out of the commercial-aviation business – meaning building planes that haul passengers on a scheduled basis.
Bombardier shares soared on the news, jumping as much as 15 per cent in afternoon trading on the Toronto Stock Exchange before sliding back to close at $2.15, a 10-per-cent gain from the previous day.
Chief executive officer Alain Bellemare was brought in to put Bombardier back on track after development of the C Series nearly drove it into bankruptcy. He is now trying to reposition the company by focusing on luxury jets and trains – product lines he believes have the best profitability and growth prospects.
Bombardier employs some 1,600 people working on the CRJ, about 40 per cent of them in Quebec. The final assembly site is in Mirabel, Que., in factory space leased from Airbus.
For Mitsubishi, buying the CRJ program would boost its capability in plane making by giving it access to Bombardier’s patents, support network and installed base of customers. The company is trying to revive Japan’s dormant commercial-aviation industry by launching the Mitsubishi Regional Jet (MRJ), a 90-seat aircraft that competes with the CRJ and planes from Brazil’s Embraer SA.
“This is like a protein shake for Mitsubishi,” said Addison Schonland of boutique aerospace consultancy AirInsight. “It’s a cup brimming with all kinds of goodness right there for the taking. It won’t be cheap, but there’s really nothing better on the menu for them. For Bombardier, it’s a great way out.”
Selling the CRJ line would allow Bombardier to further simplify its aviation business while unlocking more capital to strengthen its balance sheet, analysts said. The company last month pared back its expectations for 2019 sales and profit, citing challenges in its rail unit.
A sale could fetch net proceeds in the range of $250-million for Bombardier, AltaCorp Capital analyst Chris Murray estimates.
The fact Mitsubishi is the potential buyer is notable because the two companies are suing each other in the United States in a dispute over trade secrets. A sale could be a creative way out of that legal battle.