(Adds link to earlier exclusive, context on Boeing (NYSE:BA) in para 7)
By Allison Lampert, Andrea Shalal and Tim Hepher
MONTREAL/WASHINGTON/PARIS, Oct 6 (Reuters) - Airbus AIR.PA
on Tuesday called off talks with Bombardier BBDb.TO over
propping up the troubled CSeries jet, leaving the Canadian plane
maker facing dwindling options to keep alive its dream of
competing in the aerospace big league.
The latest blow to Bombardier, which has been trying to
shore up its shrinking cash reserves for months, came after
Reuters reported exclusively that Bombardier had made an offer
to Airbus. urn:newsml:reuters.com:*:nL1N1262OH
Both companies acknowledged that talks had taken place. A
person familiar with the situation said Airbus had ended the
talks shortly after they became public.
Under the proposed tie-up, Airbus would have helped
Bombardier complete development of the troubled aircraft in
exchange for a controlling stake in the program, effectively
ending Bombardier's independent efforts to break into the lower
end of the global airplane market dominated by Airbus and Boeing
BA.N .
Bombardier is likely to take a strategic pause and regroup
after the sudden end to what some executives had seen as a
promising possibility, according to one source.
Among the options were reviving contacts with Chinese
investors, and potentially Boeing BA.N , as well as a renewed
drive to sell stakes in the company's rail and business jet
units, the source said.
Boeing enjoys closer relations with Bombardier's arch-rival
Embraer EMBR3.SA of Brazil, and is seen as less likely to be
interested in any tie-up with Bombardier.
Bombardier shares jumped 13 percent on the Toronto Stock
Exchange immediately after Reuters reported the approach, ending
the day up 15 percent at C$1.77. The shares are still worth less
than a quarter of their value in July 2008, when Bombardier
officially launched the CSeries jet.
After the report, Airbus confirmed that it had been
exploring business opportunities with Bombardier but that such
discussions were no longer being pursued.
Bombardier then confirmed it had held talks with Airbus
about "certain business opportunities," but those discussions
were no longer under way. It said it would continue to "explore
initiatives, such as a potential participation in industry
consolidation" but gave no further details.
The Montreal-based company, which has so far received a
total of 243 firm orders for the jet, was unable to win a single
order at the Paris airshow in June and is still short of its
target of 300 firm orders by the time the aircraft enters
service, set for 2016. ID:nFWN0YU09V
Even for an industry prone to long delays and cost overruns,
the development of the CSeries has been rocky.
The project has battered Bombardier's balance sheet. As of
June 30, Bombardier had $9 billion in long-term debt and $3.1
billion in cash on hand, after burning through some $808 million
in free cash flow in the quarter.
Desjardins analyst Benoit Poirier said investors would
question why Bombardier would sell a majority stake in the
CSeries just months before first delivery, given that much of
the investments had been made.
"The willingness to sell a majority stake to Airbus with a
minimal amount of cash could reflect management's increased
concern for the company's financial position," he wrote in a
note.
DEFENSIVE APPEAL
The proposal came as the CSeries faces the most vulnerable
phase of its development: after huge one-off costs but before
revenues from deliveries, and without the cushion of airline
deposits that would come with a fatter order book.
The 110-130-seat CSeries jet competes against the smallest
models of Airbus and Boeing - part of the A320 and 737 families,
respectively - using a lightweight design and new engines from
Pratt & Whitney, part of United Technologies Corp (NYSE:UTX). UTX.N .
Airbus and Boeing have booked a combined 7,000 orders for
their latest versions of those medium-haul jets.
Although Bombardier and Airbus have clashed in the jet
market, sources said a deal could have had merits for both
sides.
Airbus would effectively have been buying a fully developed
plane, which its manufacturer says is exceeding performance
targets, at a discount to its development cost. And Bombardier
would have gained the support it needs to complete its biggest
ever plane, and benefited from the powerful Airbus sales machine
led by John Leahy, who recently conceded that Bombardier had a
"nice little plane". ID:nL1N0Z423Y
Both sides could have benefited from some cost savings in
combined supply chain management and procurement.
Any deal would have also carried defensive appeal to Airbus
by keeping the CSeries away from China, a long-term competitor
with deep pockets.
One source told Reuters that Bombardier had also approached
an unspecified Chinese buyer about acquiring a stake in the
CSeries, but those discussions ended three to four weeks ago.
Bombardier is also exploring the sale of stakes in other
units or a possible cash injection by Quebec's public pension
fund manager, sources said last week. urn:newsml:reuters.com:*:nL1N12127G
It is also boosting efforts to generate orders for the
CSeries, after refusing under a previous management to offer
steep enough discounts, financiers said in Europe on Tuesday.