Flight into danger

Well, that kind of came out of nowhere!  A year or two ago there was plenty of speculation about Bombardier possibly linking up in some fashion with Airbus in order to keep the C-Series aircraft program on track. That talk died away as both the Quebec and Federal governments made cash injections into the company, so the deal announced after trading hours on Monday was wholly unexpected.

And what a deal it is. Although the initial media reports talked of Airbus "buying" a majority stake in the C-Series, the truth is that Bombardier is giving away that stake for no immediate financial return.  Once the deal closes, Airbus will have 50.01 percent ownership, with Bombardier itself retaining just under 31 percent and the Government of Quebec 19 percent. Airbus will have the right to buy out both of its partners: Quebec in 2023 and Bombardier about two years after that.  Airbus will not assume any of Bombardier's debt.

All sides are saying that this deal has nothing to do with the 300 percent tariffs that have been imposed on the C-Series by the US Government at the behest of Boeing.  This can scarcely be believed: a key element of the deal is that Airbus will set up a second production line for the C-Series at its plant in Mobile, Alabama, for the specific purpose of avoiding those tariffs. 

It appears this would require at least 50 percent of the value of the aircraft to be manufactured in the US, and Airbus is presumably confident that this can be done.  Still, Boeing seems unlikely to back down from the fight.  It's easy to imagine the company telling Trump and the Commerce Department that it's being ganged up on by two heavily subsidized foreign rivals. It's easy to imagine Washington agreeing. 

The dream of an independent Canadian manufacturer of passenger jets may be over, but there are some upsides to the deal.  There seems to be little doubt that the C-Series is a good product, so the reluctance of airlines to buy it in large numbers may well have reflected their justifiable doubts that Bombardier could stay alive long enough to deliver the planes.  That concern is now gone, and the marketing clout of Airbus should translate into plenty of new orders.  It had better, because the current order book will not support two production lines for very long.

There is also interesting speculation in the media that there could be co-operation between Canada and Europe on Airbus's next generation of military aircraft.  Since Canada is threatening to cancel an order for Boeing fighters as a tit-for-tat response to the latter's battle with Bombardier, this could well be something that appeals to both sides in the new partnership. With the NAFTA talks seemingly heading for failure, this may also be in the Federal government's mind as it ponders whether to approve the deal.

With the C-Series taken care of, what's next for Bombardier?  Until recently it had been considering spinning off its rail division in order to raise the cash to keep the C-Series aloft.  That opportunity has been taken away by the recent merger between Siemens and Alstom, which leaves Bombardier competing in the global marketplace against a much bigger rival.  The successful parts of the rail unit are largely based in Europe; light rail manufacturing operations in North America continue to be plagued by delivery problems and lawsuits.

The company also retains its business jet divisions, though these too have been facing some difficulties, and of course is still in the snowmobile and jet-ski businesses that it started out with.  Enabled by lashings of public money, Bombardier expanded into all kinds of businesses it could not properly manage.  Maybe resolving one of its biggest problems will allow it to focus on managing the remainder of its empire more effectively.