Bombardier’s future still up in the air
With CSeries under Airbus’s control, path ahead for Bombardier is as uncertain as ever
The CSeries was supposed to be Bombardier Inc.’s ticket to the big leagues in the aerospace world.
But the strategic partnership announced this week that will see Airbus SE acquire a 50.01-per-cent stake in the signature commercial jet program, without putting up any cash, has changed all that.
On Friday, Bombardier’s chief executive Alain Bellemare and his Airbus counterpart Tom Enders addressed the Chamber of Commerce of Metropolitan Montreal, touting the blockbuster partnership as a win for all involved.
“This strategic partnership is going to fully unleash the value of the major investment we’ve done in this new aircraft,” Bellemare said. “We’ve invested a lot of money, with very smart people, over many years and what we’re doing with Airbus here is combining the strength of the best commercial aircraft company in the world with a very great product.”
Analysts have also, for the most part, hailed the agreement as a positive and perhaps the best available move for Bombardier, which was facing sluggish demand for the CSeries and had been slapped with massive duties by the United States, putting its largest existing orders in jeopardy.
But the deal also raises questions about where the iconic Quebecbased firm — which now has more than $8 billion in debt and whose profitable transportation division is facing increased competition — is heading and what kind of company it will be going forward.
A large part of that could depend on how the Airbus partnership plays out in the coming years.
According to the news release detailing aspects of the partnership, Airbus has a call option allowing it to buy out Bombardier’s stake — which now stands at 31 per cent — for “fair market value” seven-and-a-half years after the deal is finalized. Bombardier has a corresponding put option, which allows it to sell its stake to Airbus in the same time frame.
On Friday, Enders told reporters in Montreal that the company has no plans to buy out Bombardier’s share, and that “we know they are great partners and if they want to stay on the journey going forward they are very welcome to that.”
That message contradicts a statement from Airbus’s vice-president of communications Rainer Ohler who, according to the Seattle Times, said earlier this week that “at the end of the day, this will be an Airbus program.”
“It’s not forever a threesome. Over time, we take 100 per cent of the program. That’s the end game,” Ohler reportedly said.
While Airbus’s leadership is expected to boost the success of the CSeries — Enders said he expects to sell “thousands” of the planes — and may provide Bombardier the ability to recover some of the billions sunk into the program, the chances of Bombardier taking another run at the world’s commercial aviation duopoly seem slim.
“At the end of the day, the more successful this thing gets, the less likely it is to stay in Bombardier’s hands,” said Richard Aboulafia, an aviation analyst and vice-president with the Teal Group.
Chris Murray, an analyst with AltaCorp Capital, said the deal also raises questions about Bombardier’s other divisions.
“Now Bombardier has four different business, and they each have different paths ... Down the road, do they become a holding company of companies, where they own industrial conglomerates where other people run or manage it? It’s a good question, and one I don’t have an answer for, because there are a lot of different ways it could go.”
Some analysts say that the Airbus deal will allow the company to shift its focus from trying to make the CSeries viable to its more profitable business jet and transportation divisions.
Bombardier’s business jet division had $5.7 billion in revenue last year, more than double its commercial aviation program, which recorded $2.6 billion in revenues.
“Business jets were No. 1, but they were sacrificed on the altar of the CSeries. Maybe if they shift their focus to that, with very hard work, in several years they can get back to No. 1,” Aboulafia said, adding that the company could also revive its commercial Q400 turboprop aircraft while potentially reaping the rewards of CSeries sales.
But Scott Hamilton, an aviation analyst with Leeham Co., believes the sale of the CSeries may be “the first step in Bombardier exiting commercial aviation.”
“I think if you’re going to give up the CSeries, and the Q400 and CRJ are aging programs that may or may not be making the company money, then you get out of that business and go back to business jet,” Hamilton said.
“There’s certainly prestige in producing commercial aircraft, but over time if it’s going to take down the company, you get rid of the business.”
Simon Letendre, a spokesperson for Bombardier, said the plan is to continue to improve all of Bombardier’s programs, including its business jet, transportation and commercial aviation divisions.
“After the closing of the transaction, if all goes well, we’ll still have our share of the CSeries, we’ll have the CRJ and Q-Series program, so I think we’ll continue to try to continuously improve all of those programs. That’s the way we look at it,” he said.
The Airbus deal also comes as Bombardier Transportation faces increased competition on several fronts. Last month, Germany’s Siemens AG opted to partner with French rival Alstom instead of Bombardier for a multi-billion dollar rail merger to help compete with a large Chinese conglomerate.
French Finance Minister Bruno Le Maire told reporters at a press conference in Paris in September that it is open to expanding the tieup to include Bombardier.
But Laurent Troger, the head of Bombardier Inc.’s railway division, told The Canadian Press this week that the company has the scale and reach to go it alone.
“I’m not seeing this as a priority for Bombardier,” Troger said.
The Airbus partnership is expected to be finalized in the second half of 2018, 10 years after Bombardier’s board of directors first granted approval for the launch of the CSeries program.
Analysts had warned more than a decade ago that the plan to launch the CSeries was risky, and that it could raise the ire of Airbus and Boeing.
Aboulafia said Bombardier should not have pushed ahead with the CSeries program in the first place as it put the company at risk of failing, but that in the end, giving it away was the best possible outcome.
“They had always bitten off more than they could chew by a wide, ohmy-dear-god margin,” he said.
“I think Bellemare woke up and said, ‘Wouldn’t it be great to live in a world where we can actually focus on our core business and not have to worry every morning about whether we’re going to be alive the following week?’”