Bombardier Offers Airbus Majority Stake In CSeries - Report

Bombardier has approached Airbus about selling a majority stake in the Canadian company's CSeries jet, in a radical bid to prevent its aerospace ambitions being crushed by cash shortages.

Under a proposed tie-up, Airbus would help Bombardier complete development of the troubled aircraft in exchange for a controlling stake in the programme, effectively ending Bombardier’s independent efforts to break into the 100- to 160-seat market dominated by Airbus and Boeing.

Significant hurdles would need to be cleared before Airbus took up the surprise offer to invest in its smaller competitor.

"There are ongoing discussions, but they are still exploratory ones. Neither management has made a decision," a person familiar with the matter, who asked not to be identified, told Reuters news agency.

Another person called the contacts "serious," but cautioned that it "would be an extremely complicated structure to set up."

If a deal is reached, Airbus would fund the final phase of development of the CSeries, due to enter service next year. The deal would involve a minimal amount of cash up front.

In return, Airbus would receive a controlling stake in the aircraft - which is years late and billions of dollars over budget - and a share in its revenue, although details are still being worked out. One person put the odds of a deal going ahead at about 25 percent.

The firms would probably form a separate board for the CSeries and sign a strategic agreement to jointly market the plane, if a deal was reached.

Airbus and Bombardier declined comment. "We have no comment on rumours about other companies, but we are always monitoring developments in our industry," Rainer Ohler, head of communications at Airbus, said.

Bombardier spokeswoman Isabelle Rondeau said the company would not “comment on rumours.”

Until recently, Bombardier had been reluctant to offer a majority stake in its main aircraft development programme, but the company’s weakened balanced sheet has forced the Beaudoin family that controls the board to consider all options, said one person, who asked not to be named as they were not authorised to speak publicly.

"If this falls apart, they’re running out of options for that asset," said one person, in reference to the discussions with Airbus.

Bombardier had also approached an unspecified Chinese buyer about taking a stake in the CSeries, but those discussions ended three to four weeks ago, the source said.

DEFENSIVE APPEAL

The proposal comes as the CSeries faces the most vulnerable phase of its development: after huge one-off costs but before revenues from deliveries, and without the cushion of airline deposits that would come with a fatter order book.

Bombardier has booked 243 orders for the CSeries, which some analysts say is stuck in a shrinking market between smaller regional jets and the best-selling 150-180 seat models. Airbus and Boeing have booked a combined 7,000 orders for their latest versions of those medium-haul jets.

Although they have clashed in the jet market, sources say the deal could have merits to both sides.

Airbus would effectively be buying a fully developed plane, which its manufacturer says is exceeding performance targets, at a discount to its development cost, some of which would likely have to be written off by Bombardier before the venture starts.

Bombardier would gain the support it needs to complete its biggest ever plane, and benefit from the powerful Airbus sales machine led by John Leahy, who recently conceded the smaller competitor was a "nice little plane".

Both sides could benefit from some cost savings in combined supply chain management and procurement. Any deal could also carry defensive appeal to Airbus by keeping the CSeries away from China, a long-term competitor with deep pockets.

Airbus would have to get the CSeries at a "rock-bottom price" and promise investors no dilution of margins to justify any foray into Canada, one industry source said.

While talking to Airbus, cash-strapped Bombardier continues to explore the sale of other units or a possible injection of cash by Quebec's public pension fund manager. It is also boosting efforts to generate orders for the CSeries, after refusing under a previous management to offer steep enough discounts, financiers said.

Airbus briefly held preliminary talks with Bombardier about broader co-operation around a decade ago, but the talks did not progress far.

Boeing enjoys closer relations with Bombardier's rival Embraer, and is seen as less likely to be interested in any tie-up with Bombardier.

The talks may also spark concerns in Canada’s predominantly French-language province of Quebec, which is protective of its large homegrown companies and where aerospace is a key industry. The government has repeatedly offered to bail out Bombardier financially, if needed.