Plane maker Airbus SE announced plans to partner with Bombardier Inc. in what could be the biggest shake-up of the commercial jetliner business in 30 years, challenging a crippling tariff ruling pushed by Boeing Co. and the U.S. despite sluggish sales of a Canadian-made aircraft.
Bombardier and Airbus said Monday that in August they rekindled failed talks dating several back years and that the European company planned to take a majority stake in a joint venture to market Bombardier's CSeries jets. The pact included assembly of the plane in the Mobile, Ala., but wouldn't affect employment in Bombardier's main Montreal plant.
Continue Reading Below
Airbus Chief Executive Tom Enders said the company wasn't investing upfront for its majority stake in the venture, which he said would allow sales to U.S. airlines without the 300% tariff proposed for CSeries imports by American trade authorities.
Delta Air Lines Inc, which has ordered 75 of the planes, last week said it would take them but didn't expect to pay any tariffs. Delta said it may have to delay some deliveries.
Mr. Enders said on a media call that the "stars aligned" compared with earlier unsuccessful talks as the CSeries was now approved to fly and other Airbus programs were on track.
The proposed deal would intensify competition between Airbus and Boeing and potentially inflame a trade dispute between the U.S. and Canada over alleged state subsidies to Bombardier by having some Canadian-developed jets assembled on American soil.
"This looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government," Boeing said in a statement.
The U.S. Commerce Department's preliminary decision to hit Bombardier with tariffs that would quadruple the price of a CSeries aircraft in the U.S. came after Boeing complained of predatory pricing. A final decision is expected next year.
The terms would see Bombardier hold a 31% stake in the CSeries, a major concession following the company's billions of dollars of investment and decadelong development of an aircraft line, meant to strengthen its position in the global aerospace sector.
It would also mark the biggest shake-up in the commercial jet market since Boeing bought rival McDonnell Douglas in 1997, marrying two rivals even as new challengers emerge from China and Russia.
Canadian Innovation Minister Navdeep Bains said the Airbus-Bombardier pact would be subject to a review under the country's foreign-investment laws. Under Canadian law, the government reserves the right to reject a foreign takeover or investment if officials deem the transaction wouldn't bring a substantial benefit to the economy.
However, Mr. Bains said that "on the surface" the Airbus deal for Bombardier's CSeries "would help position the CSeries for success by combining excellence in innovation with increased market access and an unrivaled global sales force."
Canada has been a crucial backer of the CSeries. It provided financial assistance earlier this year to Bombardier, in terms of a C$372.5 million loan ($297.6 million), to help the company develop the CSeries and Global 7000 aircraft. However, the federal financing was short of the initial demand from Bombardier for a $1 billion lifeline.
If the new CSeries partnership experiences a cash shortfall, Bombardier has agreed to inject up to $350 million of cash in the first year of operation. If the shortfall continues during the second and third year, Bombardier has agreed to supply additional funds. In exchange for the cash Bombardier, will receive additional, but nonvoting shares, in the partnership.
Bombardier CEO Alain Bellemare said the partnership would allow the company to sidestep heavy tariffs imposed by the U.S. government in recent weeks over allegations that it selling CSeries planes at below market prices. Airbus plans to expand its jet production facilities in Alabama to build CSeries jets for U.S. buyers.
"This is exactly the right thing for the CSeries," said Mr. Bellemare to reporters Monday night. "We will be producing more CSeries to deliver to customers around the world."
Although many people familiar with the deal said the Boeing action spurred the talks, Mr. Bellemare denied it was the primary motivation.
"We're doing this deal because it is the right strategic deal for Bombardier," he said. But he added that having access to Airbus's Alabama plant allows the company to skirt the tariffs, because any planes assembled there will be deemed a domestic product in the U.S.
Mr. Enders said Airbus's investment brings certainty to the future of a jet series that hasn't been able to land a new order since last December. Bombardier's share price has fallen steadily in the past year over concerns about the company's heavy debts and continued losses.
Customers would "love to buy the CSeries but have so far held back because they were not entirely sure of the program," he said.
Airbus and Bombardier discussed a CSeries alliance more than two years ago, but Mr. Enders said talks broke off because the new jets had not yet been certified. "This was the right time," he said.
The loss of control to Airbus is a blow to Bombardier's controlling families, which over a decade ago bet the future of the company on a new line of fuel-efficient narrow body jets. Frequent product delays and equipment problems allowed Bombardier competitors such as Airbus and Boeing to beat the company to the market with similar aircraft.
--Vipal Monga contributed to this article
Write to Jacquie McNish at Jacquie.McNish@wsj.com, Doug Cameron at email@example.com and Paul Vieira at firstname.lastname@example.org
(END) Dow Jones Newswires
October 16, 2017 22:42 ET (02:42 GMT)