Bombardier Recruits Airbus In The Fight Against Boeing

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Includes: BA, BDRAF, BDRBF, EADSY
by: Tusk Media
Summary

Airbus joins up with Bombardier to support the C-Series Jet Program.

Bombardier did not make the deal from a position of strength.

But this deal still adds a lot of value to the Canadian jet maker.

The Bombardier (OTCQX:BDRAF) (OTCQX:BDRBF)-Boeing (NYSE:BA) feud just got a lot more interesting. In the wake of the nearly 300% tariff being slapped on Bombardier for importing its new C-Series commercial jets, Airbus (OTCPK:EADSY) has stepped up to make a deal. The aerospace titan has agreed to partner with Bombardier specifically for the C-Series aircraft. So, what’s in the deal?

First of all, Airbus will get a controlling 50% stake in the C-Series partnership. Bombardier will be left with 31%, and Investissement Quebec with 19%. In addition, Bombardier is expected to get the program to break even by 2020. This will require another ~$0.7-1.0b of capital, with Bombardier responsible to cover the first $700m of losses after that. In short, this acts as security for Airbus to cover cost overruns. Bombardier can expect additional shares in the partnership should it have to pay the $700m.

On the surface, it seems like Bombardier is giving the company away for nothing, but Airbus does bring a few things to the table. Abilities such as scale and supply chain expertise will have an impact from a logistics standpoint. In this video breakdown, Ben Nye states:

“They can plug in to Airbus’ operations, which should help them work down the cost curve and increase its margin.”

The increased ability for supplier relations through Airbus doesn’t hurt either.

The real significance of this deal is summed up by Nye:

“Finally, and probably most significantly, they will be able to have final assembly at the Airbus facility in Mobile, Alabama. This is really important because it means that Bombardier won’t have any import tariffs on the planes now…”

Of course, Boeing released a statement saying the deal was “questionable” and that it was only on the table to avoid the import tariffs.

Nye states:

“What does this mean for Bombardier? I think it actually breathes some life into the stock in the short term.”

It will be interesting to see how this deal really pans out and whether or not Bombardier can step up and break even on this program by 2020.

Disclosure: I am/we are long BDRBF, BA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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