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In late 2017, Bombardier (NASDAQOTH: BDRAF) (NASDAQOTH: BDRBF) shocked the market by handing a controlling stake in its CSeries aircraft program -- now known as the A220 -- over to Airbus. While Bombardier had poured billions of dollars into developing the CSeries, which was supposed to be its main growth driver, the company's management team ultimately decided that competing with Boeing and Airbus was unwise.
This divestiture left Bombardier with two dated, low-volume product families in its commercial aircraft portfolio. Last year, CEO Alain Bellemare announced that the company planned to exit commercial aviation entirely. He fulfilled this promise last week, striking a deal to sell the CRJ regional jet program to Mitsubishi Heavy Industries (NASDAQOTH: MHVYF).
In conjunction with the sale agreement, the two companies announced that CRJ production will end next year. That's another piece of good news for regional jet titan Embraer (NYSE: ERJ).
A swift exit from a key market
In recent years, Bombardier has had four main lines of business: commercial aviation, business jets, rail equipment, and aerostructures (wings, fuselages, and other major aircraft parts).
The CRJ900 has been Bombardier's best-selling commercial aircraft in recent years. Image source: Delta Air Lines.
The CSeries was intended to be the future of Bombardier's commercial aviation portfolio. As of two years ago, the unit's other two product lines were the Q400 large turboprop and the CRJ family of regional jets. However, those are aging models, each with just a few dozen remaining firm orders. Once Bombardier decided to give up its majority stake in the CSeries program, it became virtually inevitable that it would sell the rest of its commercial aviation business sooner or later.
Last fall, Bombardier agreed to sell the Q400 line to privately held Longview Aviation Capital for $300 million. That deal was completed about a month ago. The new management team is now scrambling to rebuild the Q400 order backlog, which currently stands at around 50 aircraft.
The final piece of the puzzle fell into place last Tuesday, when Bombardier announced that Mitsubishi Heavy Industries had agreed to acquire the CRJ program for $550 million. The deal is expected to close in the first half of 2020, after which Bombardier will focus its efforts on its stronger business jet and rail segments. (The aerostructures business is also up for sale.)
Mitsubishi makes another move to build up its regional jet credibility
A curious aspect of the CRJ sale is that both sides acknowledge that this aircraft program has no future. In recent years, it has become clear that airlines -- particularly in the U.S. -- vastly prefer Embraer's E175 jet over the competing CRJ900.