Airbus Takes Wingman in Boeing Fight -- WSJ

By Robert Wall Features Dow Jones Newswires

European plane maker adds Bombardier deal to increase strength in single-aisle jet market

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This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 18, 2017).

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.

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 plane maker'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 as much as $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 losses 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.

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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 company had the money to sustain the program. That worry is now gone.

Whether Airbus's 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 is 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 as many as 100 passengers or larger short-haul planes carrying 150 people or more and even bigger intercontinental versions.

Airbus expects the CSeries, which typically seats between 100 and 150 passengers, to 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 Airbus rose 4.8% in Paris, while Bombardier stock closed up 16% in Toronto.

Airbus, based in Toulouse, France, and Chicago-based 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's hand in that duopoly," said 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 might 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's 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, Ala. 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 said Tuesday that the proposed deal would have no impact on the continuing trade case. Any duties finally levied against the CSeries will have to be paid on any imported CSeries airplane or part, or it won't be permitted into the country," said Michael Luttig, Boeing's general counsel.

--Jacquie McNish contributed to this article.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

October 18, 2017 02:47 ET (06:47 GMT)