Bombardier sells regional jet business to Japanese firm Mitsubishi

Bombardier Inc. announced Tuesday a deal to sell its regional jet program to Mitsubishi Heavy Industries Ltd. for US$550 million, cementing the plane-and-train maker's exit from commercial aviation.

MONTREAL — Bombardier Inc. announced Tuesday a deal to sell its regional jet program to Mitsubishi Heavy Industries Ltd. for US$550 million, cementing the plane-and-train maker’s exit from commercial aviation.

The definitive agreement paves the way for Bombardier to focus on its rail and business jet units, which took in a combined US$1.2 billion in earnings before interest and taxes (EBIT) last year, compared with US$755 million in EBIT losses from the commercial aircraft segment.

Mitsubishi, which will also assume liabilities totalling about US$200 million, will acquire the maintenance, support, refurbishment, marketing and sales activities for the CRJ Series aircraft.

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 1,400 of the 1,600 employees who work on the CRJ — nearly half are in Canada — appear safe long-term.

Less clear is what will happen to Bombardier’s 400 CRJ production workers in Mirabel, Que., three decades after the program first took off.

“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.

“We’re going to do everything we can to keep people here,” he told The Canadian Press, adding that production workers could shift to other units — something Bombardier confirmed as a possibility.

“Given the current ramp up of the Global 7500 and the A220 programs, we are confident that we will be able to retain these employees in the Quebec aerospace industry beyond 2020,” Bombardier spokesman Simon Letendre said in an email.

Chief executive Alain Bellemare suggested the same at a press conference in Mirabel Tuesday.

“I think we found the right solution at the right time,” he said.

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 sales and high earnings margin in 2018 propelled the company to 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.

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.

“In combination with our existing infrastructure and resources in Japan, Canada and elsewhere, we are confident that this represents one effective strategy that will contribute to the future success of the Mitsubishi SpaceJet family,” Izumisawa said.

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.

Bombardier will also retain roughly US$400 million in liabilities representing a portion of the credit and residual value guarantees.

“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 6.5 cents or three per cent at $2.255 in early afternoon trading on the Toronto Stock Exchange.

Companies in this story: (TSX:BBD.B)

Christopher Reynolds, The Canadian Press