* Airbus to get 50.01 pct stake in CSeries at no cost
* To provide procurement, sales, marketing, customer support
* CSeries faces punitive duties in United States
* Airbus US assembly plant could get round import penalties
By Allison Lampert and Tim Hepher
MONTREAL/TOULOUSE, France, Oct 17 (Reuters) - Airbus SE has agreed to take a majority stake in Bombardier Inc’s CSeries jetliner program, a deal that could allow the Canadian planemaker to sidestep U.S. tariffs threatened in a trade dispute with Boeing.
Europe’s largest aerospace group will get a 50.01 percent stake in the program at no initial cost, in exchange for supporting an aircraft that has won fans for its fuel efficiency but few recent orders due to doubts over its future.
While Bombardier will lose control of a project developed at a cost of $6 billion, it gives the CSeries improved economies of scale, a better sales network and, crucially, could change the power balance in Bombardier’s costly trade dispute with Boeing.
The U.S. Commerce Department has threatened a possible 300 percent duty on CSeries jet imports after backing Boeing’s complaint that Bombardier received illegal subsidies and dumped the planes at low prices.
The deal with Airbus now means CSeries jets can be built at Airbus’ Alabama assembly plant, circumventing U.S. import duties.
“Assembly in the U.S. can resolve the (tariff) issue because it then becomes a domestic product,” Bombardier’s chief executive, Alain Bellemare, told reporters at Airbus’s headquarters in Toulouse.
Airbus CEO Tom Enders hailed the tie-up as “a win for Canada ... a win for the UK,” referring to Bombardier’s wing-making factory in Northern Ireland whose future had been threatened by the distant trade war.
He said it would also create new U.S. jobs.
The deal appeared to catch Boeing off guard. Locked in a separate 13-year trade dispute with Airbus, Boeing called it a “questionable deal” between two of its subsidized competitors.
Bellemare said he hoped the deal would be approved within 6-12 months. Canadian Innovation Minister Navdeep Bains, who must decide whether to green-light the deal, said it looked like “Bombardier’s new proposed partnership ... would help position the CSeries for success”.
Bombardier, which had not secured a new order in 18 months for the 110-130 seat plane, said the partnership should more than double the value of the CSeries program.
Tony Webber, a former chief economist at Qantas, said the CSeries could complement Airbus’s existing single-aisle models.
“The Bombardier CSeries and the 160 to 180 gauge Airbus short haul flying products (A320/321 and A319) are quite distinct markets. In other words, if you raise the price of one you don’t increase demand for the other,” he said.
At 1130 GMT, Airbus shares were up 2.5 percent at 79 euros, one of the biggest rises by a European blue-chip stock.
Bellemare called the deal with Airbus, which was first attempted unsuccessfully in 2015, a “strategic” decision that is expected to close in the second half of 2018.
“We’re doing this deal here not because of this Boeing petition. We are doing this deal because it is the right strategic move for Bombardier,” Bellemare said, referring to Boeing’s complaint that the Canadian firm received illegal subsidies and dumped CSeries planes at “absurdly low” prices.
In February, the Canadian government announced C$372.5 million ($297 million) in repayable loans for the CSeries and another Bombardier jet program.
The Airbus investment does not place any more financial burdens on Ottawa, two sources close to the case said on Monday.
The sources, who requested anonymity because they were not authorized to speak to media, also said the deal would have no effect on a separate dispute between Canada and Boeing over a proposed purchase of 18 Super Hornet jets.
Bombardier said the deal would not result in job losses and would keep the head office in Montreal and unions said the deal would benefit the program.
The Boeing-Bombardier dispute has snowballed into a bigger multilateral trade dispute, with British Prime Minister Theresa May asking U.S. President Donald Trump to intervene to save British jobs.
Bombardier is the largest manufacturing employer in Northern Ireland and May’s Conservatives rely on the support of the small Northern Irish Democratic Unionist Party (DUP) party for their majority in parliament.
Business Secretary Greg Clark said Britain would work closely with the two planemakers, while the DUP said the agreement was “incredibly significant news” for Belfast.
Talks for the deal between Airbus and Bombardier first started in August. Enders said the deal was different from an earlier round of talks in 2015, when he abruptly ordered an end to negotiations. He said the CSeries’ has since been certified, entered service and was performing well.
“It’s an entirely different situation,” he said.
Delta Air Lines Inc, which ordered 75 CSeries planes, said after the announcement that it looked forward to introducing the planes into its fleet.
The deal could also drive Boeing closer together with Brazil’s Embraer, with which it already cooperates. Embraer’s E2 jet is one of the main potential losers from the CSeries deal.
“Airbus and Bombardier are now allies. This greatly increases the likelihood of a stronger Boeing-Embraer alliance as a response,” said Teal Group analyst Richard Aboulafia.
Under the deal, Bombardier will own about 31 percent of CSeries Aircraft Limited Partnership (CSALP), which manufactures and sells the jets, while Investissement Québec, the investment arm of the province of Quebec, will hold 19 percent. In 2015, Quebec took a 49 percent stake in the program for $1 billion, although its stake was more recently diluted to 38 percent.
Quebec’s largest pension fund, which holds a 30 percent stake in Bombardier’s rail division, said the decision strengthened the company and improved its growth prospects.
Bombardier is in the middle of a five-year turnaround plan after considering bankruptcy because of a cash-crunch as it developed multiple planes simultaneously, including the CSeries.
The deal also provides Airbus warrants exercisable to acquire up to 100 million Class B Shares of Bombardier.
“Bombardier expects the CSeries programme to be break even around 2020. Airbus experience on the supply chain and suppliers’ terms can only positively improve the path towards break even and after that,” UBS said in a briefing note.
($1 = 1.2529 Canadian dollars)
Additional reporting by Ankur Banerjee in Bengaluru, Alana Wise in Atlanta, David Ljunggren in Arlington, Va., Michael Holden in London and Richard Lough and Sudip Kar-Gupta in Paris; Writing by Denny Thomas, Guy Faulconbridge and Richard Lough; Editing by Mary Milliken, Himani Sarkar and Mark Potter