Bombardier sells controlling stake in C Series to Airbus
Bombardier has given a 50.1% stake in its C Series aircraft program to Airbus, signaling a move away from the commercial airliner space, which had been historically the worst performing division at the Canadian company.
The deal sees Airbus take a majority stake by paying no cash upfront, and having an option to buyout the remaining shareholders in 7 and a half years, which the France-based company says its likely to do. Existing shareholders include Bombardier at 31% and the Quebec government at 19%. Bombardier valued its C Series business at $2 billion prior to the deal.
"Yes, Airbus is getting a great deal here, but the value for Bombardier could be much higher than if they continued to go it alone." said Cam Doersken, analyst at National Bank Financial. "People viewed the C Series as an ongoing cash burn. This removes all of that uncertainty."
According to John Di Bert, Bombardier's CEO, the deal could more than double the value of the C Series program. This would put the value of the project at over $4 billion, increasing the value of Bombardier's stake despite the dilution that came with the Airbus deal.
During the 1990s, regional commercial jets contributed to a large portion of Bombardier's revenue. Following increased competition from the Brazil-based Embraer, this sector proved however difficult for the company, which also saw its turboprops sales decline at the same time with competition from ATR, partly owned by Airbus. Business jet sales have however become an area of focus for the Canadian manufacturer.
With Bombardier only a year away from starting to ship its largest private jet ever, the Global 7000, analysts are confident that it will be able to grow. The company's train business is also expected to increase profits through more optimization.
Following the announcement of the Airbus deal, Bombardier stock jumped 15% up to C$2,73. Analysts at NBF expect this figure to get up to C$3,50 in the next 12 months.