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Report On Business Bombardier offered C Series stake for a ‘song,’ Airbus executive says

A Bombardier Series jet is seen in a hangar Wednesday, February 17, 2016 in Montreal.

Paul Chiasson/THE CANADIAN PRESS

Bombardier Inc. offered rival Airbus Group SE an investment in its C Series plane program for a "song," Airbus sales chief John Leahy said, as he provided a glimpse into talks that broke down last October after they were leaked to the media.

Speaking on Monday to a group of reporters at an Airbus event in Hamburg, Germany, Mr. Leahy said Airbus seriously considered the offer, according to an account of his comments by trade publication FlightGlobal.

Airbus figured it could cut the cost of making the C Series planes by about 10 per cent over what Bombardier projected, FlightGlobal reported Mr. Leahy as saying. Airbus could also offer Bombardier a global support network for the planes, he said.

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Bombardier approached Airbus as part of a larger effort to try to find a strategic partner with which it could share risk and reward for the C Series program over the long term, a source told The Globe and Mail. "There were some people that were very keen on this deal," the person said.

Mr. Leahy said Airbus passed in the end because company chief executive officer Tom Enders believed an investment in the C Series would cause too much distraction for the European plane maker as it increased work on three separate families of aircraft, including the A320neo.

"We've moved on" from the Airbus talks, Bombardier spokeswoman Marianella delaBarrera said, without addressing the issue of the price that was offered for a C Series stake. She said Bombardier is seeing strong customer interest in the aircraft and performance capabilities it hasn't yet revealed publicly, which may be motivating the public pronouncements by its competitors.

Montreal-based Bombardier later struck a memorandum of understanding with the Quebec government under which the province agreed to invest $1-billion (U.S.) for a 49.5-per-cent equity stake in a new limited partnership containing the assets and liabilities of Bombardier's C Series program as well as warrants for up to 200 million subordinate voting shares.

That deal was widely seen as instrumental in convincing prospective Bombardier customers that the debt-challenged company would not be allowed to fail. It is expected to be finalized by the end of June.

Bombardier's request for a $1-billion matching investment from the Canadian government remains outstanding. Sources say negotiations have been difficult, although the lines of communication are still open.

Mr. Leahy has long sneered at the possibility that Bombardier could build a plane to challenge Boeing and Airbus, even as Airbus was offering heavy discounts and other incentives to customers to keep the Canadian plane from getting a foothold in the market. Though he has been quick to belittle both Bombardier and the C Series, his colleagues have been more measured. The company's chief operating officer has admitted that Airbus takes seriously the threat posed by Bombardier's larger C Series, the 130- to 160-seat CS300, as well as the possibility an even larger version could eventually be introduced.

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The C Series, $2-billion overbudget and two years late to market, is the biggest airplane Bombardier has ever built as well as its most ambitious – launching it into competition with the smallest single-aisle airliners made by Airbus and Boeing Co. The program is on a "long path to commercial viability," according to an analysis published May 24 by credit company Moody's Investors Service. A recent order by Delta Air Lines for 75 CS100 airliners nevertheless added some "much needed legitimacy to the program and enhances market confidence that the company may actually be able to achieve its targeted break-even cash flow profile in 2020," Moody's said.

Not surprisingly, Airbus was more downbeat about the prospects for the C Series.

"They don't have a business case" for the plane, Mr. Leahy said in separate comments reported by trade publication Aviation Daily. When asked about a previous vow he made to strangle Bombardier's fledgling program, Mr. Leahy said: "It's a cute little airplane. And nobody strangles a cute little anything."

In the past, the Airbus executive has called the C Series "a nice little plane" doomed for a life of poor sales and "an orphan" that comes in only two variants versus the larger aircraft families of rival plane makers.

Mr. Leahy said he heard that Bombardier sold the CS100 to Delta for $22-million each, which would be a 69-per-cent discount from its official list price of $71.8-million. Ms. delaBarrera said that information is "absolutely wrong," adding the company is well within its projections for the aircraft's business case and pleased with the results.

Bombardier has acknowledged that it would be very aggressive on price to land a market-moving order such as the Delta deal. In its latest quarterly results, it disclosed it would take a $500-million non-cash "onerous contract provision" in its second quarter related to its past three C Series orders.

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