BIG DEAL FOR BOMBARDIER
Air Canada to buy jets
After 17 months spent scouring the globe for its next CSeries customer, Bombardier Inc. found its saviour waiting for it at home.
Air Canada stepped up to the plate Wednesday with a deal to buy as many as 75 CSeries jets from the struggling Montreal-based aerospace company.
Bombardier also announced Wednesday that it will cut 7,000 jobs, or about 10 per cent of its global workforce, with most of those coming from its aerostructures and engineering services division and its transportation business in Canada and Europe.
Air Canada said it received no financial support from the federal government and was under no political pressure to order the aircraft. However, the Quebec government will drop a lawsuit over Air Canada’s decision to move maintenance work to the U.S. in exchange for an agreement to have the CSeries maintained in Quebec for at least 20 years.
“There was no government pressure whatsoever, this is a 100-percent commercial deal,” Air Canada CEO Calin Rovinescu said at a press conference announcing the deal.
“That being said, I think the governments do see the value of an Air Canada stepping up to the plate at this moment in time ... It certainly gives a shot in the arm to the aerospace industry in Canada.”
Federal Transport Minister Marc Garneau also told reporters in Ottawa that he would seek to “clarify” the legislation that governs Air Canada in order to allow it “to respond more effectively to changing market conditions,” according to Bloomberg News.
The deal, which still has to meet certain closing conditions, will see Air Canada buy 45 of Bombardier’s larger CS300 jets with options for 30 more in a deal worth up to US$6.4 billion at list prices.
Bombardier’s shares soared on the news, gaining more than 20 per cent.
“Today is a turning point,” Bombardier CEO Alain Bellemare said.
“This order will create significant value for Air Canada and it will become a catalyst for future orders in North America and around the world.”
The first 25 CS300s will replace Air Canada’s existing fleet of Embraer E190s, with the rest supporting network growth, Rovinescu said.
As recently as May 2014, Air Canada said the E190s would remain in its fleet for the “foreseeable future” and it had no plans to buy the CSeries “in the short term.”
The deal is pivotal for Bombardier, which had not recorded a new order for the CSeries since September 2014. Air Canada is also the first major North American customer for the aircraft.
“It’s about time,” said Scott Hamilton, managing director of aviation consultancy Leeham Co.
“This is clearly something that Bombardier needs, and we’ll see whether or not it’s the first of a series of good blue-chip orders.”
The deal should help turn the CSeries into a “viable program,” agreed Richard Aboulafia, vicepresident of analysis at Teal Group Corp., an aviation research firm.
“It is easily the best and most significant order they’ve ever got, and it could be the salvation of the plane.”
The longer Bombardier went without an order, the more questions were raised about the viability of the program, which created a vicious cycle. At the same time, the company has been struggling to adjust to a slowdown in demand for business jets and is working to improve margins at its Berlin-based train-making business.
As Bombardier struggled to keep its head above water, the Quebec government stepped in last fall with a $1 billion US investment in exchange for a 49.5 per cent stake in the CSeries program. The province’s pension fund also offered support, taking a 30 per cent stake in the company’s transportation business for US$1.5 billion.
Wednesday’s order from Air Canada, while instrumental, has not changed the fact that Bombardier is seeking additional financial support from the federal government.
Although no decision has been made, Bellemare provided the strongest hint yet about what that support could look like.
“We are looking forward to seeing the federal government coming into the (CSeries) program as a liquidity partner,” he said on a conference call with analysts.
“Quebec came in with a very good structure where they have equity ownership and we’ve been benefiting significantly from that, so we’re hoping the federal government would do something similar to that.”
Economic Development Minister Navdeep Bains said the government’s talks with Bombardier are ongoing.
“Any action the government takes with respect to Bombardier will be first and foremost in the interest of Canadians,” Bains said in a statement.
“We have been clear that such an important decision will only be made after due diligence, careful consideration and a strong business case.”