(Reuters) – Bombardier Inc said on Tuesday it will sell its money-losing regional jet business to Japan’s Mitsubishi Heavy Industries Ltd (MHI) for $550 million in cash, in a deal marking the Canadian plane and train maker’s exit from commercial aviation.
FILE PHOTO: Bombardier’s logo is seen on the building of the company’s service centre at Biggin Hill, Britain March 5, 2018. REUTERS/Peter Nicholls/File Photo
Montreal-based Bombardier has been selling off its weaker-performing commercial plane programs aimed at airlines to focus on profitable business jets and passenger rail cars. The company faced a cash-crunch in 2015 while bringing a larger narrowbody jet to market.
The deal, which Bombardier said was completed at 6:30 a.m. ET (1030 GMT) on Tuesday, is expected to close in the first half of next year.
Under the agreement, the Japanese firm will take over $200 million in liabilities, but receive Bombardier’s estimated $180 million interest in a financing structure it created to support aircraft leasing.
In an interview, Bombardier Chief Executive Alain Bellemare said some proceeds would be used to reduce debt.
“I’m not going to do the math, but that’s clearly the game plan,” he said by phone.
The proceeds exceeded some analysts’ expectations.
“It generates a return better than we had anticipated and ends the company’s exposure in a program which we believe was a drag on earnings,” AltaCorp analyst Chris Murray said in a note.
Bombardier has an additional $400 million liability from residual value guarantees provided to airlines on the regional jet program.
Bellemare said he did not see a “problem” gaining regulatory approval.
Jean-Luc Ferland, a spokesman for Canada’s Innovation Minister Navdeep Bains, said details of the agreement will be reviewed “to ensure it benefits Canadians.”
Bombardier will continue to assemble its regional jet planes (CRJ), but will stop making the aircraft in the second half of 2020, after it finishes delivering on its remaining backlog of 42 orders.
CRJ’s profitable aftermarket sales, engineering expertise and heavy maintenance centers in the United States, would be useful for Mitsubishi, which is trying to develop and certify its delayed regional jet program, the MRJ, which has been rebranded as “SpaceJet.”
“It’s an important step for us as a whole,” said Dan Lochmann, a spokesman for MHI.
Bellemare said about 400 workers producing the CRJ in the Montreal-area would likely find other jobs, such as with Airbus, which needs workers for the A220 jet it acquired last year from Bombardier.
“We believe there are plenty of opportunities to reposition these people,” he said.
Bombardier and Mitsubishi had previously said they were holding talks over the regional jet program.
The Japanese firm is trying to certify the plane, which has been delayed by several years with its first customer, ANA Holdings Inc. It now expects delivery in 2020 rather than in 2013 as originally planned.
A trade secrets lawsuit brought by Bombardier against Mitsubishi’s aircraft unit has been “stayed” or suspended and will be dropped when the deal closes.
Shares of Bombardier pared earlier gains to close up 2.74% at C$2.25 ($1.71) in Toronto.
Reporting by Allison Lampert in Montreal and Debroop Roy in Bengaluru; additional reporting by Steve Scherer in Ottawa and Tim Hepher in Paris; editing by James Emmanuel, Susan Thomas, Tom Brown and Richard Chang