In a major retreat for Canada's flagship transportation company, Bombardier Inc. said Monday it had agreed to a joint venture with Airbus SE for its most important commercial-jet business in the wake of a crippling tariff ruling by the U.S. and sluggish sales for the aircraft.
The companies said Airbus would acquire a 50.01% stake in Bombardier Inc.'s CSeries jets. Airbus CEO Tom Enders said the company was not investing any money upfront for its majority stake, but it will provide ongoing funding support.
When the partnership deal closes, Bombardier will be left with a 31% stake in the CSeries, a major concession following the company's billions of dollars of investment and decade-long development an aircraft line, meant to strengthen its position in the global aerospace sector.
The proposed deal would intensify competition between the Airbus and Boeing Co. 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. The 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.
The deal would also mark the biggest shakeup in the commercial jet market since Boeing bought rival McDonnell Douglas in 1997, marrying two rivals even as new challengers emerge in China and Russia.
Canada's Innovation Minister, Navdeep Bains, said in a statement 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 would not 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 C Series for success by combining excellence in innovation with increased market access and an unrivaled global sales force."
Canada's Trade Minister, Francois-Philippe Champagne, went further, telling reporters Monday night the deal could "save" the Canadian aerospace sector, which employs over 200,000 people across the country -- including many in the politically-important greater Montreal region.
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, 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 non-voting shares, in the partnership.
Bombardier's CEO Alain Bellemare said the partnership will 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 C-series," said Mr. Bellemare to reporters Monday night. "We will be producting more C series 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 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.
Delta Airlines Inc. has ordered 75 CSeries aircraft which are set to start deliveries next spring.
Mr. Enders said Airbus' investment brings certainty to the future of a jet series that has not 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, equipment problems allowed Bombardier competitors such as Airbus and Boeing to beat the company to the market with similar aircraft.
--Doug Cameron and Vipal Monga contributed to this article
Write to Jacquie McNish at Jacquie.McNish@wsj.com and Paul Vieira at firstname.lastname@example.org
Corrections & Amplification
This article was corrected October 16, 2017 at 10:33 p.m. EST to show that Canada provided Bombardier with financial assistance to help the company develop the CSeries and Global 7000 aircraft. The original version of this article incorrectly identified the Global 7000 as the Global 700.
Canada provided Bombardier with financial assistance to help the company develop the CSeries and Global 7000 aircraft. "Airbus and Bombardier Ink 20-Year Passenger Jet Partnership -- Update," at 19:40 ET, incorrectly identified the Global 7000 as the Global 700 in the fifth paragraph, and "Airbus and Bombardier Ink 20-Year Passenger Jet Partnership -- 2nd Update" at 21:16 ET, made the same mistake in the ninth paragraph. (Oct. 16, 2017)
(END) Dow Jones Newswires
October 16, 2017 22:40 ET (02:40 GMT)