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Bombardier exits commercial aviation with sale of regional jet business to Mitsubishi

Bombardier exits commercial aviation with sale of regional jet business to Mitsubishi
FILE PHOTO: Bombardier's logo is seen on the building of the company's service centre at Biggin Hill, Britain March 5, 2018. REUTERS/Peter Nicholls -
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Peter Nicholls(Reuters)
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By Allison Lampert and Debroop Roy

(Reuters) – Bombardier Inc said on Tuesday it will sell its money-losing regional jet business to Japan’s Mitsubishi Heavy Industries Ltd (MHI) for $550 million (£433 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 programs 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 to market.

The deal, which Bombardier said was completed at 6:30 a.m. ET (1030 GMT) on Tuesday, is expected to close in the first half of next year.

As part of the agreement, the Japanese firm will take over $200 million in liabilities, but receive Bombardier’s estimated $180 million interest in a financing structure it created to support aircraft leasing.

In an interview, Bombardier Chief Executive Alain Bellemare said some proceeds from the deal would go towards debt reduction, although he would not offer specifics.

“I’m not going to do the math, but that’s clearly the game plan,” he said by phone.

Bombardier has an additional $400 million liability from residual value guarantees provided to airlines on the regional jet program.

Bellemare said he does not see a “problem” gaining required 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 program, the MRJ.

“It’s an important step for us as a whole,” said Dan Lochmann, a spokesman for MHI.

Bellemare said about 400 workers who produce 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.

Mitsubishi is “committed” to Bombardier’s workforce, such as its engineers and customer support workers, Lochmann said by phone from Japan.

Bombardier and Mitsubishi had previously said they were holding talks over the regional jet program.

Mitsubishi’s MRJ program has been rebranded as “SpaceJet.”

The Japanese firm is trying to certify the plane, which has been delayed by several years with its first customer, ANA Holdings Inc, now expecting delivery in 2020 rather than in 2013 as originally planned.

Proceeds from the deal exceeded some analysts’ expectations.

“We see the transaction as positive as it generates a return better than we had anticipated and ends the company’s exposure in a program which we believe was a drag on earnings,” AltaCorp analyst Chris Murray said in a note.

Shares of Bombardier pared some of their earlier gains and were up 2.74 % to C$2.25 ($1.71) in afternoon trading in Toronto.

(Reporting by Allison Lampert in Montreal and Debroop Roy in Bengaluru; additional reporting by Steve Scherer in Ottawa; editing by James Emmanuel, Susan Thomas and Tom Brown)

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