With the C Series burden lifted, will Bombardier invest in Learjet?

Airbus’ entree as majority partner in Bombardier’s fledgling C Series airliner program will ultimately lift a heavy and costly burden from the Canadian planemaker.

The deal, announced by both companies earlier this week, calls for Airbus to take a majority stake in the C Series and open a second assembly line for the plane at its Mobile, Ala., facility where it assembles the A320 for U.S. airlines.

The agreement will give Bombardier access to the world’s second-largest commercial planemaker’s sales, marketing and customer support muscle. That is expected by both company officials and analysts to dramatically boost sales of the C Series, which for a new airplane have been lagging since it was initially certified in 2016. Orders stand at about 300, according to Bombardier’s most recent information.

At the very least, industry experts and analysts said, the deal should provide stability for Bombardier long term, and free up Bombardier to reinvest in its business aircraft unit beyond the new Global 7000, possibly even the Learjet product line in Wichita.

“If Learjet had any hope, this is it,” said Teal Group analyst Richard Aboulafia. “Doing the C Series meant neglecting pretty much all their other assets.”

And even if it that reinvestment doesn’t involve a new Learjet, Bombardier’s Wichita site ultimately stands to benefit from the C Series pact with Airbus, industry experts say.

No ‘preordained survival’

It took Bombardier almost eight years and billions of dollars to develop and certify the composite passenger jet that seats between 100 and 150 passengers through two variants, the CS100 and the CS300. Along the way, it needed a $1 billion investment from the Quebec government to keep the program going.

And it paused and later canceled development of the Learjet 85, resulting in the layoff of about 1,000 employees, including 620 in Wichita.

About a year after it began delivering the CS100 and CS300 to customers such as Swiss International Airlines and AirBaltic, Boeing filed a complaint with the U.S. Department of Commerce and the International Trade Commission alleging Bombardier was “dumping” its C Series into the U.S. by selling the planes to Delta Air Lines well below its cost to manufacture them.

Boeing alleges the Delta deal was unfair and harmful to its business because the Quebec subsidy allowed Bombardier to sell the planes below cost. In August, the Commerce Department issued a preliminary ruling in Boeing’s favor and recommended duties of 300 percent on each C Series plane Bombardier sells in the U.S. A final ruling by the International Trade Commission, which has the final say whether U.S. sales will be subject to those duties, isn’t expected until early next year. Still, the concern remained that it would impair the Delta order, which was considered key to the C Series’ long-term success.

Airbus CEO Tom Enders said in a conference call with reporters Monday that the deal had been in the works since August. It is expected to close in the second half of 2018.

“The larger sales and marketing network at Airbus should also lead to a more robust order backlog and a more valuable program in the long term,” wrote J.P. Morgan analyst Seth Seifman in a note to investors on Tuesday.

Bombardier also will benefit from Airbus’ size in terms of buying C Series parts from suppliers, another analyst said.

“Bombardier hopes to lower the production cost of the airplane by leveraging Airbus’ supply chain organization,” Wells Fargo senior analyst Sam Pearlstein wrote in a Tuesday note to investors.

Moreover, Airbus’ plan to assemble C Series jets destined for U.S. airlines in Mobile is seen as a way to circumvent any imposition of duties on the plane.

“Night and day, (the Airbus deal) removes all the risk of the program and greatly increases its commercial prospects,” Aboulafia said. “Its survival before this wasn’t preordained.”

A new Learjet?

Bombardier’s Wichita operations should at the very least benefit from the longer-term financial stability the Airbus deal offers, analysts said.

It also could mean that in a few years, Bombardier will have the financial means to think about reinvesting in its business aircraft.

But analysts aren’t fully confident the company would develop a new Learjet. That product line now is made up of two aircraft, the Learjet 70 and 75. Both were introduced in 2013 and are derivatives of the Learjet 40 and 45.

“Conceivably, if they are going to save (Learjet) it probably means a new product,” Aboulafia said.

Business aviation forecaster Rolland Vincent, who worked at Bombardier through most of the 1990s, thinks any investment in the business jet line would first start with the Challenger 650, a derivative of the CL600 that first flew in 1978 and was originally called the LearStar 600, after Learjet founder Bill Lear, who helped design the large cabin business jet.

“I could see new work for sure coming to Wichita,” Vincent said. “My thinking is they’re going to focus next on the Challenger line, especially the 600 series, the 650. It’s getting pretty long in the tooth.”

Vincent said even though Learjets are a much smaller jet than the Challengers, “there’s no reason that work, at least some of it, couldn’t be done in Wichita.”

Besides producing Learjets, the Wichita site and its 1,600 employees flight test all of the company’s aircraft, including the C Series, as well as repair and maintain all of its business jets, including the Challenger and Global lines.

This story was originally published October 18, 2017 at 6:35 PM with the headline "With the C Series burden lifted, will Bombardier invest in Learjet?."