Boeing rival Airbus steps into CSeries fight with Bombardier

Shares of Boeing (BA) are in focus in morning trading after rival Airbus (EADSY) announced plans to buy a majority stake in Bombardier's (BDRBF) CSeries jet program. Boeing called the agreement, which comes amid a decision by the Commerce Department to hit Bombardier with tariffs that would quadruple the price of the CSeries aircraft, a "questionable deal between two heavily state-subsized competitors." AIRBUS, BOMBARDIER DEAL: Airbus has agreed to buy a majority stake in Bombardier's CSeries program. Under the terms of the agreement, Airbus will buy 50.1% of the C Series Aircraft Limited Partnership, which manufactures and sells the CSeries, and will provide procurement, sales, marketing and customer support. Bombardier and Investissement Quebec will own approximately 31% and 19%, respectively, of CSALP at closing. Airbus will also be entitled to name the chairman of CSALP and will propose four directors, while Bombardier and IQ will each propose one director to the seven director board. The transaction, which is currently expected to close in the second half of 2018, is subject to regulatory approvals and other conditions usual in this type of transaction. Airbus plans to add a final assembly line in Canada and additional C Series production at Airbus' manufacturing site in Mobile, Alabama, it said. Airbus said that this "strengthening of the program and global cooperation will have positive effects on Quebec and Canadian aerospace operations. Airbus is strongly committed to Canada and its aerospace sector with Canadian suppliers extending their access to Airbus' global supply chain. This new C Series partnership is set to secure jobs in Canada for many years to come." Blasting the deal, Boeing said it "represents unfair competition," adding that this "looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government." DISPUTE BACKGROUND: The CSeries jets have not secured a new order in 18 months and face a potential 300% duty on U.S. imports. The tariff followed a complaint from Boeing that the company had dumped its C-Series jets at "absurdly low" prices. In April Boeing complained to U.S. authorities that aid received by Bombardier from the Canadian and U.K. governments amounted to illegal subsidies, allowing it to sell its C-Series jets to Delta Air Lines (DAL) for below cost price. Delta has placed a $5.6B order for up to 125 of the CSeries jets, and delivery is set to begin in 2018. Delta said last week that it has ordered 75 of the CSeries jets and said it "will not pay those tariffs," adding that it may need to delay some of the deliveries. Bombardier CEO Allan Bellemare said its deal with Airbus can resolve its trade dispute with Boeing, The Globe and Mail reported this morning. WHAT ANALYSTS ARE SAYING: Credit Suisse analyst Robert Springarn views the Airbus-Bombardier deal as a net positive for both companies and said it offers a solution to the trade dispute with Boeing. Wells Fargo analyst Sam Pearlstein agreed that the Airbus-Bombardier deal is a "creative" solution to the trade case, but noted that it is modestly negative for Boeing because establishing a U.S. based final assembly for the C Series could protect the airplane from U.S. tariffs and it provides a less than 150 seat airplane to Airbus that could pressure the 737-MAX7. PRICE ACTION: Boeing is down 0.6% to $258.29 in morning trading. Meanwhile, Bombardier shares trading in New York are up nearly 20% and Airbus shares in New York are up about 5%.