Bombardier sells regional jet business to Mitsubishi as it narrows its focus
July 2, 2019
July 2, 2019
MONTREAL – Bombardier Inc. has reached a deal to sell its floundering regional jet program to Mitsubishi Heavy Industries Ltd. for US$550 million, cementing the plane-and-train maker’s departure from commercial aviation following a three-decade run.
The definitive agreement paves the way for Bombardier to focus on its rail and business jet units, leaving it with roughly US$400 million in liabilities representing a portion of the credit and “residual value guarantees.”
Mitsubishi, which will also assume liabilities totalling about US$200 million, will scoop up the maintenance, support, refurbishment, marketing and sales activities for the CRJ Series aircraft, but not its manufacturing operations.
The deal includes the related services and support network located in Montreal and Toronto and its service centres in Bridgeport, W.Va., and Tucson, Ariz.
“Employees working in these areas will be joining MHI once regulatory approval is received,” said Mitsubishi spokeswoman Leanne Denman. That means the jobs of about 1,200 of the 1,600 employees who work on the CRJ – nearly half are in Canada – appear safe in the medium-term, though Mitsubishi declined to answer whether layoffs could follow.
Less clear is what will happen to Bombardier’s 400 CRJ production workers in Mirabel, Que.
“By all indications, that will be the end of this program at the production level,” said David Chartrand, spokesman for the International Association of Machinists and Aerospace Workers union. “For me, it’s the end of an era.”
Bombardier chief executive Alain Bellemare said the CRJ assembly-line workers and engineers could likely keep their jobs by working on the A220 and Global 7500 programs or elsewhere at the company.
“We believe that over the next 18 months, between Airbus and Bombardier, we will be able to reposition these people,” he told reporters Tuesday. “If we cannot, the backup would be the rest of the aerospace industry, which is in great need right now for people with skills like that.”
Bombardier will continue to assemble the current CRJ backlog – currently 42 planes – on behalf of Mitsubishi, with production expected to be completed in the second half of 2020.
“It’s just the final nail in the coffin of Bombardier commercial airplanes,” said Robert Kokonis, president of Toronto-based consulting firm AirTrav Inc.
Once a cash cow for the Montreal-based company, the CRJ now struggles to generate profits. For the past five years, Embraer SA’s E175 narrow-body aircraft has dominated the U.S. market, where the majority of regional jets are sold.
Bombardier recently sold its Q400 turboprop business to an affiliate of Longview Aviation Capital Corp. for about $250 million in net proceeds.
The transportation company is placing renewed focus on its business jets – such as the Global 7500 _ whose robust bookings and high earnings margin hold great promise after the company in 2018 posted its first annual profit in five years. Last year, it sold a majority stake in its C Series commercial aircraft program to Airbus, which rebranded it the Airbus A220.
Bombardier’s rail and business jet businesses took in a combined US$1.2 billion in earnings before interest and taxes (EBIT) last year – 20 per cent more than the company’s total EBIT due to US$755 million in EBIT losses from its commercial aircraft segment.
“You can imagine an older part of the company would be hard to find a buyer, but because Japan hasn’t had a lot of aerospace – especially in a commercial area – in a long time, this is an opportunity for them,” said Deborah de Lange, associate professor at Ryerson University’s Ted Rogers School of Management.
The appeal of the CRJ purchase lies partly in aftermarket sales and maintenance as well as engineering know-how.
Mitsubishi chief executive Seiji Izumisawa said the deal is an important step towards building a strong, global aviation capability, which includes a Mitsubushi-made CRJ variant, the MRJ, that it hopes to launch next year.
The CRJ production facility in Mirabel will remain with Bombardier, which will also continue to supply components and spare parts as part of the US$550-million deal.
“Five-hundred million is better than we thought it was going to be,” said analyst Chris Murray of AltaCorp Capital. “The CRJ program, I don’t think it’s been profitable for years on the build of new aircraft.
“If you add in the sale of parts and the support service, maybe it’s done OK. But it’s probably capital better deployed in debt reduction or other corporate purposes,” he told The Canadian Press.
Murray predicted that the aerostructures unit, which makes components such as wings and fuselage and generated 12 per cent of 2018 revenues, will “be the next likely divestment” as the company zeroes in on business jets and rail.
The CRJ deal is expected to close in the first half of next year, subject to regulatory approvals and customary closing conditions.
Bombardier shares gained six cents or 2.74 per cent to close at $2.25 on the Toronto Stock Exchange.