BBD.B Bombardier Inc

By Robert Wall 

Airbus SE and Boeing Co., in their decadeslong scramble to outsell and outbuild each other, typically slug it out at air shows and on factory floors around the world.

On Monday, the rivalry for the $200-billion-a-year commercial aviation market took a turn into the deal room: Airbus agreed to take a majority stake in Bombardier Inc.'s CSeries jet project, effectively pulling the Canadian company into the European planemaker's corner.

The deal is the first of its kind for Airbus, which is putting in no equity upfront for its 50.01% stake. Bombardier has agreed to finance up to $700 million of any near-term funding needs. Airbus, meanwhile, will take operational control and put its enormous sales and marketing infrastructure to work selling the CSeries.

The single-aisle jet has won positive reviews from passengers and airlines. Bombardier has struggled to sell the plane, however, amid uncertainty over whether the Canadian firm had the financial muscle to sustain the program. That worry is now gone.

Whether Airbus' backing alone can turn the plane into a real hit is another question. The plane is slightly smaller than the workhorses that have become the industry's best sellers. It's a plane size Boeing and Airbus have both stayed away from in the past, amid questions over demand from airlines, especially in the U.S. They have tended to prefer either smaller regional planes seating up to 100 passengers or larger short-haul planes carrying 150 people or more and even bigger intercontinental versions.

Airbus thinks the CSeries, that typically seats between 100 and 150 passengers, can dominate what it calls a new market for some 6,000 planes over the next two decades, said Patrick de Castelbajac, Airbus head of strategy, in an interview Tuesday. "We see a big growth reservoir in a market that is largely untapped," he said. Bombardier has so far sold just 360 CSeries planes in almost a decade.

Investors were bullish. Shares in Toulouse, France-based Airbus were up more than 2.5% in early afternoon European trading.

Airbus and Boeing have effectively enjoyed a duopoly in the market for big commercial planes, ones that seat over 100 passengers, since 1997, when Boeing bought rival McDonnell Douglas.

The Airbus-Bombardier tie-up is much more limited in nature than that mega-deal. It nonetheless presents the biggest potential change in the balance of power in the market in 30 years.

For decades, Boeing and Airbus have essentially engaged in trench warfare. The rivalry has been most fierce in the narrow body sector, the hottest market for big planes in recent years. Airbus had won 5,202 orders through September for its workhorse in the category -- the A320neo. It has delivered 158. Boeing has won 3,902 orders so far for its 737 Max. It has delivered about 30. The new Airbus plane rolled out before the latest Boeing version.

The deal "significantly strengthens Airbus' hand in that duopoly," says Nick Cunningham, aerospace analyst at investment advisor Agency Partners.

Russia and China in May each began flight testing rival single-aisle planes, as well, though they may not enter service for several more years. Airbus decided to make a bid for the CSeries in part to avoid the plane maker falling into the hands of Chinese rivals, according to a person close to the talks. Airbus held talks with Bombardier in 2015 about a partnership on the CSeries before that deal unraveled.

"Clearly we are now going to have the lead in the single-aisle segment," said Airbus' Mr. de Castelbajac. Boeing criticized the deal Monday.

One of Bombardier's biggest CSeries deals, a 75-aircraft order with Delta Air Lines Inc., has become a political flashpoint. Boeing challenged the deal, and U.S. authorities have accused Bombardier of dumping the plane on the U.S. market.

The dispute led U.S. authorities to propose a 300% tariff for CSeries imports. The deal with Airbus envisions U.S.-bound CSeries planes being assembled at the European plane maker's existing aircraft production plant in Mobile, Alabama. It already makes A320 jetliners for American carriers there. Airbus and Bombardier said the move would avoid the tariff.

The uncertainty over the U.S. deal helped spur talks between Airbus and Bombardier, which began in August. The Airbus agreement with Bombardier "looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government," Boeing said in a statement. Boeing and Airbus are also locked in a multi-year battle at the World Trade Organization over commercial airplane subsidies.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

October 17, 2017 09:24 ET (13:24 GMT)

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