Airbus Pokes Trump, Boeing With Bombardier Deal

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In an agreement announced on Monday, Airbus has agreed to provide support for Bombardier’s C Series aircraft in exchange for a 50.01% stake in “C Series Aircraft Limited Partnership” (CSALP), a firm formed in 2015 that included Bombardier (62%) and Investissement Quebec (38%). Once the deal closes, Bombardier will hold 31% of CSALP and Quebec will hold 19%.

The agreement is a win for Bombardier, which now gets some financial muscle, and for Airbus, which gets a controlling stake in the C Series with no capital outlay. Boeing Co. (NYSE: BA) gets a poke in the eye.

The most important part of the agreement is the Airbus plan to assemble the C Series planes at its plant in Mobile, Alabama, effectively circumventing the anti-dumping tariff imposed against Bombardier by the U.S. Department of Commerce that could have raised the price of the CS-100 by up to 300%.

Bombardier has appealed the dumping decision to the U.S. International Trade Commission (ITC), arguing that Boeing was not harmed because the U.S. company does not build an aircraft that competes with the 100- to 150-seat CS-100. The first CS-100 scheduled for delivery to a U.S. customer is scheduled for delivery to Delta Air Lines Co. (NYSE: DAL) next April.

Bombardier’s CEO said on Monday that he believes Delta will be willing to wait for the first delivery until the Mobile-built planes become available. Delta placed a firm order for 75 of the aircraft with an option for an additional 50.

Neither Airbus nor Bombardier offered a timeline for manufacturing the CS-100 in Mobile. Airbus announced its intention to build the U.S. plant in 2012 and the first A320 was delivered less than three years later in mid-2015. Tooling up to build the CS-100 could be achieved even more quickly.

Airbus CEO Tom Enders said:

This is a win-win for everybody! The C Series, with its state-of-the-art design and great economics, is a great fit with our existing single-aisle aircraft family and rapidly extends our product offering into a fast growing market sector. I have no doubt that our partnership with Bombardier will boost sales and the value of this programme tremendously.

It’s a win-win for everybody but Boeing and the U.S. Department of Commerce. The Wall Street Journal cites a statement from the company:

This looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government.

In other words, Boeing got blindsided and doesn’t have a response. The Trump administration, likewise, can’t very well argue that building the CS-100 in Alabama is anti-competitive and costing U.S. jobs.

The issue for Boeing is not so much the CS-100. Bombardier is right that Boeing doesn’t have a plane that competes in that segment of the market. The issue is the next Bombardier jet, the CS-300 which goes head-to-head with the Boeing 737 and would have gone head-to-head with the Airbus A320. Now it’s two against one and Boeing does not like the odds.

CSALP will have a seven-member board, four of whom are named by Airbus, two by Bombardier, and one by Investissement Quebec. Airbus will name the chairman. Shares are expected to trade on the Toronto Stock Exchange.

Boeing’s shares traded down about 1.3% Tuesday morning to $256.25, in a 52-week range of $134.25 to $263.79. The stock’s 12-month consensus price target is $275.73.