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Bombardier exits commercial jet sector with closure of US$550M CRJ deal
Published Monday, June 1, 2020 11:46AM EDT Last Updated Monday, June 1, 2020 3:58PM EDT
Bombardier Global 6500 business jet (image: Bombardier)
MONTREAL -- Bombardier Inc. has completed the sale of its regional jet business to Mitsubishi Heavy Industries Ltd. for US$550 million, cementing the plane maker's departure from commercial aviation following a three-decade run.
The sale of its CRJ aircraft series paves the way for Bombardier to focus on its sole future income stream -- private jets -- as the company ramps production back up following factory closures during the COVID-19 pandemic, which cost the company up to US$800 million last quarter.
The deal adds sorely needed capital to a firm whose debt tops US$9 billion and whose backlog of business jet orders is falling as clients and companies rethink the value of a private plane purchase in a recession.
Once a cash cow for the Montreal-based company, the CRJ series now struggles to generate profits, 29 years after its maiden voyage. 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.
"There's been limited orders for the aircraft and limited expectations that they would ever see a material number of orders in the future," AltaCorp Capital analyst Chris Murray said in a phone interview. "The market has been moving away from it."
Under the agreement, Mitsubishi scoops up the CRJ's maintenance, marketing and sales activities along with 1,400 employees, but not its manufacturing operations.
The deal includes the related services and support network located in Montreal and Toronto and service centres in Bridgeport, W.Va., and Tucson, Ariz.
Bombardier will continue to assemble the current CRJ backlog -- 15 planes as of March 31 -- on behalf of Mitsubishi, with all deliveries expected to be made before 2021.
The transaction is part of a string of sales aimed at reducing the company's overhead and injecting liquidity in the wake of debt racked up to fund its C Series commercial aircraft program.
In February Bombardier announced the sale of its remaining stake in that business -- rebranded as the Airbus A220 -- to Airbus SE, marking the end of its failed bid to take on the commercial aircraft duopoly of Airbus and Boeing Co.
Bombardier sold its Q400 turboprop business last year to an affiliate of Longview Aviation Capital Corp. for about US$250 million in net proceeds.
The US$500-million sale of its aerostructures business in Belfast and Morocco to Spirit Aerosystems -- initially anticipated in the first half of 2020 -- should close "in the coming months," CEO Eric Martel said in May.
He said he does not foresee any pandemic-related delays to the US$8.2-billion sale of its rail division to French train giant Alstom SA -- now undergoing regulatory scrutiny in the European Union -- expected to close in the first half of 2021.
The 78-year-old firm continues to grapple with credit downgrades and a share price hovering near 25-year lows, leaving it a penny stock with junk-status credit ratings.
Despite the challenge of vending private planes as the economy plunges into recession, Martel remains hopeful for the segment's prospects, calling the backlog for the Global 7500 -- the largest Bombardier business jet on offer and listed at US$73 million each -- "very, very solid."
The market for the smaller Learjet and Challenger airplanes, however, looks "a little bit more volatile," he said on May 7.
The exposure of a single revenue source in general is heightened by the particularly volatile nature of private plane sales, said Murray of Altacorp Capital.
"With Bombardier moving to be primarily just a business jet manufacturer, it does expose the company to more volatile cycles. And they're cycles that have a tendency to be really, really good in some periods and can be very volatile to the downside as well," he said.
On the other hand, wariness of commercial air travel could stoke demand for business aircraft, he added.
For Mitsubishi, the appeal of the CRJ lies in aftermarket sales and maintenance as well as engineering know-how.
The acquisition hands a ready-made service network for the Tokyo-based company's upcoming aircraft line. However, Mitsubishi said earlier this year that the first delivery date for its SpaceJet program -- formerly dubbed the Mitsubishi Regional Jet -- would be pushed back from mid-2020 to late 2021 or early 2022.
The CRJ production facility in Mirabel, Que., will remain with Bombardier, which will also continue to supply components and spare parts as part of the deal.
The union representing the 271 machinists who still work on the CRJ in the Montreal suburb will be relocated within the area to either Dorval or Ville Saint-Laurent, where Bombardier builds the fuselage, cockpit and other sections of its business jets.
Bombardier says the transaction is still subject to post-closing adjustments and that the company retains liabilities that represent credit and residual value guarantees totalling US$288 million.
This report by The Canadian Press was first published June 1, 2020.