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Bombardier sells regional jet business to Mitsubishi for US$550m
BOMBARDIER Inc said it will sell its money-losing regional jet business to Japan's Mitsubishi Heavy Industries Ltd (MHI) for US$550 million in cash, in a deal marking the Canadian plane and train maker's exit from commercial aviation.
Montreal-based Bombardier has been selling off its weaker-performing commercial plane programmes aimed at airlines to focus on profitable business jets and passenger rail cars. The company faced a cash crunch in 2015 while bringing a larger narrowbody jet to market.
The deal, which Bombardier said was completed on Tuesday, is expected to close in the first half of next year.
Under the agreement, the Japanese firm will take over US$200 million in liabilities, but receive Bombardier's estimated US$180 million interest in a financing structure it created to support aircraft leasing.
Mitsubishi Heavy shares fell 1.5 per cent as Asian markets started trading, while the broader market was down 0.5 per cent.
In an interview, Bombardier chief executive Alain Bellemare said some proceeds would be used to reduce debt.
"I'm not going to do the math, but that's clearly the game plan," he said by phone.
The proceeds exceeded some analysts' expectations.
"It generates a return better than we had anticipated and ends the company's exposure in a programme which we believe was a drag on earnings," AltaCorp analyst Chris Murray said in a note.
Bombardier has an additional US$400 million liability from residual value guarantees provided to airlines on the regional jet programme.
Mr Bellemare said he did not see a problem gaining regulatory approval.
Jean-Luc Ferland, a spokesman for Canada's Innovation Minister Navdeep Bains, said details of the agreement will be reviewed "to ensure it benefits Canadians". Bombardier will continue to assemble its regional jet planes (CRJ), but will stop making the aircraft in the second half of 2020, after it finishes delivering on its remaining backlog of 42 orders.
CRJ's profitable aftermarket sales, engineering expertise and heavy maintenance centres in the United States would be useful for Mitsubishi, which is trying to develop and certify its delayed regional jet programme, the MRJ, which has been rebranded "SpaceJet". "It's an important step for us as a whole," said Dan Lochmann, a spokesman for MHI.
Jefferies analyst Sho Fukuhara said the brokerage had a negative impression of the deal due in part to concerns that the aftermarket business' financials were not disclosed.
"We have limited visibility for synergies by applying the aftermarket experience of 30-year-old CRJ series to MHI's SpaceJet that has most advanced technology," Mr Fukuhara said in a note to clients.
Mr Bellemare said about 400 workers producing the CRJ in the Montreal area would likely find other jobs, such as with Airbus, which needs workers for the A220 jet it acquired last year from Bombardier.
"We believe there are plenty of opportunities to reposition these people," he said.
Bombardier and Mitsubishi had previously said they were holding talks over the regional jet programme.
The Japanese firm is trying to certify the plane, which has been delayed by several years with its first customer, ANA Holdings Inc. It now expects delivery in 2020 rather than in 2013 as originally planned.
A trade secrets lawsuit brought by Bombardier against Mitsubishi's aircraft unit has been stayed or suspended and will be dropped when the deal closes.
Shares of Bombardier pared earlier gains to close up 2.74 per cent at C$2.25 in Toronto. REUTERS