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How Airbus landed the C Series

Bombardier resumed talks with the European plane maker after examining three other options

Bombardier Inc. was pushed into the hands of Airbus SE after holding talks with Chinese investors that went nowhere and being sued by Boeing Co., which the company had earlier approached to partner on the C Series airliner.

Hamstrung by a $8.7-billion (U.S.) debt load and a lingering perception that it didn't have the resources to play in the big leagues of global plane making, Bombardier was struggling to sell the C Series. This summer, chief executive Alain Belle..

mare concluded the fate of the company and the aerospace industry in Canada was at stake. So he made it a priority to find a partner for the C Series, according to sources who spoke on condition they not be identified.

In August, with Quebec's blessing and after exploring three separate options over several months - including a partnership with Boeing, selling a piece of the C Series to a Chinese company and shutting down the program outright - he turned to a familiar face as a fourth option. He called Airbus chief executive Tom Enders.

The two companies resumed talks on a C Series pact that had broken off two years earlier. And in the space of less than three months, they hammered out a deal that will change the face of the global aerospace industry. Airbus will control the C Series limited partnership with a 50.01-per-cent stake, bringing to the venture its brand name and industrial power while paying nothing.

It has an option to buy out Bombardier and Quebec as minority partners in several years' time.

The deal is an extraordinary development for Bombardier and its founding family, finally bringing within reach their original aspiration to become a force in single-aisle commercial jets in addition to business aircraft and passenger trains.

But winning the credibility that Airbus brings with it as a partner has come at a steep cost. Bombardier did this deal to change, once and for all, the perception that the C Series would fail, observers and insiders said.

Bombardier shares jumped nearly 16 per cent on the Toronto Stock Exchange on Tuesday. It was by far the most heavily traded stock with 50.8 million shares changing hands as investors bet Airbus will be the key to a better future for Bombardier.

"I think the decision to do this and the market reaction tells you how much pessimism has been built around what's happening with this company," said Charles Lemonides, founder of ValueWorks LLC, a New York-based investment management firm that holds Bombardier shares.

"You remove the pessimism and things look a lot better."

How Bombardier got here is high drama.

The seeds for the extraordinary deal announced on Monday between Bombardier and Airbus really began in 2015, when the Canadian plane maker was starved for cash and on the verge of bankruptcy because of ballooning costs to get its C Series plane to market. Mr. Bellemare was just months into his new job trying to fix Bombardier as chief executive.

And he quickly reached out to Airbus proposing a joint venture to spin off the C Series, Bombardier's big bet to drive revenue in its commercial aerospace business over the next two decades.

Bombardier was in a bad place financially but wasn't acting like it at the negotiating table with Airbus in 2015. Airbus executives had spent every opportunity they could mocking the C Series to keep Bombardier from winning sales and Bombardier wasn't rolling over. Airbus "wasn't the only thing in town" at the time, one source said. "We were looking at all the options."

A French mergers-and-acquisitions executive who advised Airbus in 2015 on the negotiations confirmed Bombardier didn't act as if it was desperate. On the contrary, it was demanding, he said.

Mr. Enders vetoed the deal in 2015 because he did not like the terms proposed and because Airbus had its own internal issues to contend with. Airbus liked the technologically advanced C Series as a potential small-product offering below its own A320 plane. But the C Series was not yet certified by regulators and not yet flying commercially, making it an unproven proposition at time Airbus was grappling with the production start of its bigger A350 aircraft, Mr. Enders told reporters.

Bombardier then turned to Quebec, which agreed to invest $1-billion in a C Series limited partnership for a 49.5-per-cent stake. Quebec's motivation was always to protect jobs. It was fearful Bombardier would go under.

It survived and Mr. Bellemare started to gain ground with his turnaround plan for the company.

But while the noose of an $8.7-billion long-term debt was slackened, it nevertheless put pressure on Bombardier in unseen ways. Behind the scenes, Bombardier continued having trouble selling the C Series to customers worried that the company would not be around to deliver and service the planes, sources said. The aircraft is a technological marvel. But there has been no significant sale in more than a year.

To find a more permanent solution that would resolve the market's restlessness with the C Series, Mr.

Bellemare still needed a strategic partner.

Sources say Bombardier approached Boeing. But then, in April of this year, the Chicago-based plane maker sued Bombardier using U.S. law, alleging it used unfair subsidies to sell the C Series at "absurdly low" prices. The relationship quickly turned adversarial. Boeing became enemy No. 1 to Bombardier, Quebec and Canada.

Over the summer, Ottawa entered into secret negotiations with Boeing to put an end to the trade dispute, sources say. Bombardier was interested in striking a deal with Boeing that would have created a strategic partnership at the same time as Boeing would have dropped its complaints, but the company refused. Bombardier also explored a C Series partnership with several Chinese state-owned enterprises, including Commercial Aircraft Corp. of China Ltd., according to separate sources. But Ottawa was not keen on a deal between the Canadian plane maker and a Chinese partner and federal officials made their views known to the company and facilitated discussions with Airbus, the sources said.

With a file from Les Perreaux

© The Globe and Mail

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