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October 18, 2017

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Airbus teams up with Canada’s Bombardier on CSeries project

AIRBUS SE has agreed to buy a majority stake in Bombardier Inc’s CSeries jetliner program, giving a powerful boost to the Canadian plane and train maker in its costly trade dispute with Boeing Co.

The deal, which would come at no cost for Europe’s largest aerospace group, would give Airbus a 50.01 percent interest in CSeries Aircraft Limited Partnership, which manufactures and sells the jets, the companies said.

While Bombardier will lose control of a plane program developed at a cost of US$6 billion, it gives the CSeries improved economies of scale, a better sales network and, crucially, could change the power balance in the trade dispute with Boeing.

The 110-to-130 seat plane, which has not secured a new order in 18 months and is being threatened by a possible 300 percent duty on US imports, would be built for US airlines at Airbus’s Alabama assembly plant, circumventing any import penalties in a move that apparently caught Boeing off guard.

Bombardier said the partnership should more than double the value of the CSeries program.

“Bombardier no longer has control of this jet, but then again, it’s better to have a 30 percent share of a very successful program than to struggle with a highly risky program that was perhaps too big for them from the start,” said aerospace analyst Richard Aboulafia.

Canadian Innovation Minister Navdeep Bains, who must decide whether to approve the deal, said in a statement that “on the surface, Bombardier’s new proposed partnership ... would help position the CSeries for success.”

Boeing — which is also locked in a separate 13-year trade dispute with Airbus — said it was a “questionable deal” between two of its state-subsidized competitors.

Airbus Chief Executive Tom Enders said the company, based in Toulouse, France, had offered to assemble some of the narrowbody jets at its US plant in Alabama for orders by US carriers.

The US assembly line would mean the jets would not be subject to possible US anti-subsidy and anti-dumping duties of 300 percent, Bombardier Chief Executive Alain Bellemare said on a media conference call.

Bellemare called the deal with Airbus, which was first attempted unsuccessfully in 2015, a “strategic” decision that is expected to close in the second half of 2018.

“We’re doing this deal here not because of this Boeing petition. We are doing this deal because it is the right strategic move for Bombardier,” Bellemare said, referring to Boeing’s complaint that the Canadian firm received illegal subsidies and dumped CSeries planes at “absurdly low” prices.

‘Questionable deal’

A Boeing spokesman dismissed the agreement as a “questionable deal between two state-subsidized competitors” to try to skirt a recent US trade finding against the CSeries.

In February, the Canadian government announced C$372.5 million (US$297 million) in repayable loans for the CSeries and another Bombardier jet program.

The Airbus investment does not place any more financial burdens on Ottawa, two sources close to the case said on Monday.

The sources, who requested anonymity because they were not authorized to speak to media, also said the deal would have no effect on a separate dispute between Canada and Boeing over a proposed purchase of 18 Super Hornet jets.

Ottawa has frozen contacts with Boeing’s military wing until the company drops its challenge against the CSeries.

Bombardier said the deal would not result in job losses and would keep the head office in Montreal. Unions said the deal would benefit the program.

“Ultimately, the US actions have created a stronger Bombardier,” said Jerry Dias, president of Unifor, which represents some of Bombardier’s unionized workers in Canada.

The Boeing-Bombardier dispute has snowballed into a bigger multilateral trade dispute, with British Prime Minister Theresa May asking President Donald Trump to intervene in order to save British jobs.

Bombardier is the largest manufacturing employer in Northern Ireland. May’s Conservatives are dependent on the support of the small Northern Irish Democratic Unionist Party party for their majority in parliament.

British Business Secretary Greg Clark welcomed the Airbus deal with Bombardier, saying Britain would work closely with the firms to protect its interests and the leader of the Northern Irish party propping up May’s minority government said it was “incredibly significant news” for Belfast.

Talks for the deal between Airbus and Bombardier first started in August. Enders said the deal was different from an earlier round of talks in 2015, when he abruptly ordered an end to negotiations. He said the CSeries’ has since been certified, entered service and was performing well.

“It’s an entirely different situation,” he said.

Delta Air Lines Inc, which ordered 75 CSeries planes, said after the announcement that it looked forward to introducing the planes into its fleet.


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