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Are You Earning or Losing Money From the Bombardier Deal?

October 21, 2017
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If you have ever ridden a roller-coaster then you may have an idea of what it is like to own Bombardier stock. The Canadian transportation system manufacturer has had a history of ups and downs, of profitability and government loans.

Yet the company seems to be well positioned after reaching an agreement with Airbus on Monday. Business Insider reports that:

On Monday, Airbus announced that it has acquired a 50.01% stake in Bombardier’s next-generation C Series airliner program. Mechanisms within this week’s deal will see Airbus taking complete ownership of the C Series program in less than five years.

This is a significant development for two reasons. The first is that it sent Bombardier’s stock into the stratosphere as it allowed them to hedge the losses from the lost sales to Delta. The second is that it gives Airbus a substantial leg up in the race for dominance of the single aisle aircraft market.

Read: After Battle Boeing Grows Sales, Bombardier Looks East

Bloomberg columnist David Fickling cites a graph that demonstrates that as of December of last year, Boeing held a slight advantage in the single aisle market by around 100 planes. With the acquisition of over 50% of the C-Series program, they shrink the gap substantially. Furthermore, who knows how much more manufacturing capability Bombardier gains out of the deal? It could drive up production and even allow Airbus to pass Boeing going forward.

Fickling goes on to say that Boeing’s entire effort to stymie the Canadian company’s expansion may have been more of a shot in its own foot than anything. It now faces retaliation from a Canadian government that had been considering purchasing Super Hornet fighter planes before this whole fiasco.

On the other hand, Airbus is in a tremendous position. Now controlling a massive share of the single aisle market and holding a right to purchase the C-Series outright in five years has them looking set to surpass Boeing going forward.

Bombardier is the wildcard. While the company netted healthy gains from the deal, it has now dealt its most valuable card. They must now come up with a new product to sustain them going forward while dealing with the fallout from the Canadian public that bankrolled them over the year.

Investors who are involved in airline stocks should take some time to survey the field. This was a ground breaking deal that could have long term consequences for many companies across the sector.

To read Business Insider’s article on the C-Series jets, click here.

To read Bloomberg columnist David Fickling’s article, click here.

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