Airbus SE and Boeing Co. have spent decades trying to outbuild and outsell each other at air shows and on factory floors around the world.
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On Monday, their battle for the $200-billion-a-year commercial aviation market took a turn into the deal room: Airbus agreed to take a majority stake in Bombardier Inc.'s CSeries jet project, effectively pulling the Canadian company into the European planemaker's corner.
The deal is the first of its kind for Airbus, which is putting in no equity upfront for its 50.01% stake. Bombardier has agreed to finance up to $700 million of any near-term funding needs. Airbus, meanwhile, will take operational control and put its enormous sales and marketing infrastructure to work selling the CSeries.
The tie-up sent Bombardier's share price to its highest level in more than two years -- erasing loses this year -- as it renewed investors' confidence in a program that has been plagued by delays, the threat of crippling U.S. tariffs and customer concerns about the company's financial health.
The single-aisle jet has won positive reviews from passengers and airlines. Bombardier has struggled to sell the plane, however, amid uncertainty over whether the Canadian firm had the money to sustain the program. That worry is now gone.
Whether Airbus' backing alone can make the plane a hit is another question. The plane is slightly smaller than the workhorses that have become the industry's best sellers. It's a plane size Boeing and Airbus have both stayed away from in the past, amid questions over demand from airlines, especially in the U.S. They have tended to prefer either smaller regional planes seating up to 100 passengers or larger short-haul planes carrying 150 people or more and even bigger intercontinental versions.
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Airbus thinks the CSeries, which typically seats between 100 and 150 passengers, can dominate what it says is a new market for some 6,000 planes over the next two decades, said Patrick de Castelbajac, Airbus head of strategy. "We see a big growth reservoir in a market that is largely untapped," he said. Bombardier has so far sold just 360 CSeries planes in almost a decade.
Shares in Toulouse, France-based Airbus were up 3.8% in afternoon trading in Europe, while Bombardier stock surged 22% in early trading Tuesday in Canada.
Airbus and Boeing have effectively had a duopoly in the market for big commercial planes -- ones that seat over 100 passengers -- since 1997, when Boeing bought rival McDonnell Douglas.
The Airbus-Bombardier tie-up is much more limited in nature than that megadeal. It nonetheless presents the biggest potential change in the balance of power in the market in 30 years.
For decades, Boeing and Airbus have essentially engaged in trench warfare. The rivalry has been most fierce in the narrow-body sector, the hottest market for big planes in recent years. Airbus had won 5,202 orders through September for its workhorse in the category -- the A320neo. It has delivered 158. Boeing has won 3,902 orders so far for its 737 Max. It has delivered about 30. The new Airbus plane rolled out before the latest Boeing version.
The deal "significantly strengthens Airbus' hand in that duopoly," says Nick Cunningham, aerospace analyst at investment adviser Agency Partners.
Russia and China in May each began flight testing rival single-aisle planes as well, though they may not enter service for several more years. Airbus decided to make a bid for the CSeries in part to avoid the plane maker falling into the hands of Chinese rivals, according to a person close to the talks. Airbus held talks with Bombardier in 2015 about a partnership on the CSeries before that deal unraveled.
"Clearly we are now going to have the lead in the single-aisle segment," said Airbus' Mr. de Castelbajac.
Boeing launched a challenge in April, a year after Delta Air Lines Inc. agreed to buy 75 CSeries jets. Boeing accused Bombardier of selling the jets for less than it cost to manufacture and filed a petition with the U.S. Commerce Department and the International Trade Commission alleging Canadian state subsidies created an unfair competitive advantage. The dispute led U.S. authorities to propose a 300% tariff for CSeries imports.
The uncertainty over the U.S. deal helped spur talks between Airbus and Bombardier, which began in August. Bombardier's planned joint venture with Airbus envisions U.S.-bound CSeries planes being assembled at the European plane maker's existing aircraft production plant in Mobile, Alabama. It already makes A320 jetliners there. Airbus and Bombardier said the move would allow them to avoid the tariff, though they haven't detailed the potential cost of expanding the facility.
Boeing criticized the proposed deal Monday, saying in a statement that it "looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government." Boeing and Airbus are also locked in a multiyear battle at the World Trade Organization over commercial airplane subsidies.
--Jacquie McNish contributed to this article.
Write to Robert Wall at firstname.lastname@example.org
(END) Dow Jones Newswires
October 17, 2017 14:55 ET (18:55 GMT)