Bombardier Inc. chief executive Alain Bellemare just saved Canada's largest aerospace company from financial ruin by all but giving away its C Series passenger jet to Airbus Group SE.
And according to sources close to the deal, the hardest people to sell on salvation were Bombardier's controlling shareholders, the Beaudoin family, who presided over the $6-billion bet-the-company investment in the C Series and struggled to cut emotional and financial ties to the aircraft.
The C Series jet is quiet, it's comfy and it's fuel efficient. None of which mattered to potential customers. Airlines were steering clear of the 100– to 150-seat aircraft because they feared, with good reason, that Bombardier's $8.6-billion debt load would drag down the manufacturer and orphan any C Series they buy for their fleets.
Mr. Bellemare, dropped into the pilot's seat two years ago, boiled the decision on the cash-bleeding C Series down to four options: joint ventures with one of Boeing, Airbus or a Chinese aerospace company, or shutting the whole project down, according to sources familiar with the process.
Airbus was always the preferred partner: Boeing effectively ruled itself out by taking a run at Bombardier and negotiations with Chinese entities never found traction, according to sources. Killing the C Series would have have caused carnage in the Quebec aerospace industry; recall that Ontario lost a generation of engineers when the Avro Arrow program was cancelled in 1959.
Getting Airbus CEO Tom Enders on board wasn't difficult. Airbus and Bombardier discussed a joint venture two years ago, but Mr. Enders opted to step back because the C Series still hadn't been certified and brought into production. Once those milestones were achieved, Airbus saw the regional jet as a natural fit into its portfolio;
The more difficult pitch for Mr. Bellemare, sources say, was convincing Bombardier chairman Pierre Beaudoin, who launched the C Series in 2008, and father Laurent Beaudoin, the company's chairman emeritus, on the wisdom of walking away. In recent weeks, the Beaudoin clan came to agree that Bombardier was in precarious shape and needed a deep-pocketed partner to help keep the C Series aloft, while allowing the company to focus on selling business jets and trains.
The terms of this deal speak to just how badly Bombardier wanted a partner. Airbus doesn't put up any cash for a 50.01-per-cent stake for what's known as the C Series Aircraft Limited Partnership, or CSALP. The newly created company doesn't have any debt attached: The cost of developing the aircraft stays on Bombardier's balance sheet.
Going forward, Bombardier will own a 31-per-cent stake in CSALP while provincial agency Investissement Québec will hold 19 per cent.
Bombardier is on the hook for up to $700-million (U.S.) in "cash shortfalls" at CSALP over the next three years; in return for any payments, it receives non-voting CSALP shares. Airbus also received warrants to acquire 100 million Bombardier shares at $2.29 (Canadian) each, the price of the stock prior to announcement of the deal. The warrants can be exercised over the next five years and are already in the money; Bombardier stock closed Tuesday at $2.69, and was worth more than $20 when the company was on a roll a decade back.
And in 7 1/2 years, Airbus has the right to buy Bombardier's remaining stake in CSALP at "fair market value," while the Montreal-based company has the right to force the purchase. Airbus's right to buy Bombardier's remaining stake in the C Series ensures that if the aircraft is as successful as Pierre Beaudoin forecast when the project was launched nine years ago, the European manufacturer will reap the rewards.
For Bombardier, the C Series became a financial liability that threatened to crash the whole company. While Mr. Bellemare deserves credit for finding a new pilot for the plane, the decision to hand the project to Airbus is the latest in a series of humbling setbacks for the Beaudoin clan.
Andrew Willis