Bombardier Inc. said on Tuesday it will sell its money-losing regional jet business to Japan’s Mitsubishi Heavy Industries Ltd (MHI) for $550 million in cash, in a deal marking the Canadian plane and train maker’s exit from commercial aviation.
Montreal-based Bombardier had combined its aviation units to focus more on profitable business jets and passenger rail cars, after facing a cash-crunch in 2015 while bringing its flagship commercial jet to market. News of the deal sent Bombardier shares up as much as 5% in morning trade.
As part of the deal, which is expected to close in the first half of next year, the Japanese firm will also take over a $200 million debt.
“We see the transaction as positive as it generates a return better than we had anticipated and ends the company’s exposure in a program which we believe was a drag on earnings," AltaCorp analyst Chris Murray said in a note.
“In addition to Bombardier focusing on its core business jet and rolling stock/transportation businesses, the potential leverage reduction associated with this spinoff could be greater than we had anticipated," Citi analyst Stephen Trent wrote in a note.
Bombardier will continue to assemble its regional jet planes (CRJ), but will stop making the aircraft in the second half of 2020, after it finishes delivering its remaining orders.
CRJ’s profitable aftermarket sales, engineering expertise and heavy maintenance centers in the United States, would be useful for Mitsubishi, which is trying to develop and certify its delayed regional jet programme, the MRJ.
“It’s an important step for us as a whole," said Dan Lochmann, a spokesman for MHI.
About 1,600 people work on the CRJ programme, including production employees as well as employees who provide aftermarket services. About 40% of employees are in Canada.