Airbus Takes On Boeing By Striking Deal For Bombardier Ownership Stake
Boeing’s battle to crush Bombardier has encountered an unexpected obstacle.
Bloomberg reports that Airbus SE has agreed to acquire a majority stake in Bombardier Inc.’s C Series program, which the Commerce Department slapped with a 300% tariff it ruled in Boeing’s favor in a complaint alleging Bombardier had benefited from anti-competitive government subsidies.
Under the terms of the deal, Airbus won’t pay a dime up front for the C-Series, but will begin assembling the technologically advanced by poor-selling jetliner in the US in what Bloomberg said could be an effort to circumvent the tariffs. Airbus is adding another final assembly line for the C-Series at its factory in Mobile, Alabama, which will serve US customers and complement production in Canada, according to a company statement late Monday. However, Bloomberg says it’s unclear if the deal will allow the C-Series to avoid the tariffs.
It’s too soon to say if the new Alabama production line would enable the C Series to avoid U.S. tariffs. The duties were applied to C Series planes “regardless of whether they enter the United States fully or partially assembled,” according to a U.S. government fact sheet on the matter. Boeing said Airbus and Bombardier were just trying to get around the restrictions.
As part of the deal, Airbus will assume just over half of the interest in a partnership controlling the C-Series. Bloomberg says the European planemaker’s marketing muscle and production expertise boosts the viability of the all-new aircraft after more than $6 billion in development costs forced Bombardier to rely on government assistance.
The deal also thrusts Airbus into the middle of a trade spat between the two North American aerospace firms. In response to the Commerce Department’s ruling, Canadian Prime Minister Justin Trudeau canceled military equipment orders with Boeing, adding that they wouldn’t be reinstated until Boeing drops its complaint against Bombardier.
Boeing filed its complaint in April after Delta Air Lines agreed to buy 75 of the C-Series in a deal worth some $5 billion. Boeing alleged that the planes had been sold for “absurdly low prices.”
The dispute had crossed the Atlantic even before Airbus’s involvement. UK Prime Minister Theresa May said she personally lobbied President Trump to cancel the tariffs. Bombardier has a large factory in Belfast, a constituency that’s important to the conservatives, which employs 4,000 locals.
The Airbus deal is an embarrassing setback for Boeing, one analyst said.
“This is a program that has been waiting for a deus ex machina, and wow, it really got one,” Richard Aboulafia, an aerospace analyst at Teal Group, said in an interview. The deal casts Airbus as a global player while Boeing comes off as “a bit shortsighted and protectionist. It makes Boeing look like they’ve been playing tic tac toe against a chess master.”
Bombardier shares traded in Toronto climbed 15.7% on Tuesday after the deal was announced.
Trump and Canadian Prime Minister Justin Trudeau discussed the deal Monday evening in a phone call, according to a statement from Trudeau’s office that provided no details of the conversation.
Canadian Innovation Minister Navdeep Bains said the deal will face a review under the Investment Canada Act. But one unnamed government source told Bloomberg that it’s likely to be approved.
Assuming it is approved, the transaction would be expected to close in the second half of next year, at which point Airbus will own 50.01% of the C Series partnership. Bombardier will hold about 31% and the province of Quebec, which controversially invested $1 billion in the C Series after the cost overruns and delays, will own approximately 19%. Quebec will remain an investor in the C Series until at least 2023, said the province’s economy minister, Dominique Anglade.
Bombardier has rejected Boeing’s complaint, saying Boeing doesn’t have grounds to accuse Bombardier of unfair trade practices because Boeing doesn’t make a mid-sized jet comparable to the C-Series.
Unsurprisingly, Boeing criticized the deal, hinting that it could try to expand its complaint to include Airbus if the company tries to avoid the C-Series sanctions.
“This looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government,” Boeing, the world’s largest aerospace company, said in an emailed statement. “Our position remains that everyone should play by the same rules for free and fair trade to work.”
Of course, Airbus and Boeing are each other’s primary rival. By acquiring the ownership stake in the C-Series, Airbus is killing two birds with one stone. Embarassing and threatening Boeing, while acquiring new technology for cheap that could allow it to cater to a new kind of customer: Chinese airlines looking for more fuel-efficient planes.