TOKYO -- Mitsubishi Heavy Industries will purchase Bombardier's regional jet program for $550 million in cash, the two companies said Tuesday, in a move that is expected to help the Japanese group break into the highly competitive commercial aviation market.
The acquisition gives Mitsubishi immediate access to the Canadian company's network of maintenance hubs in North America -- the region that is the primary target of Mitsubishi's aviation foray -- as well as know-how and experience.
The deal marks a big step toward Mitsubishi's goal of developing its own passenger jets at subsidiary Mitsubishi Aircraft, and a departure from its go-it-alone strategy.
The unit has been developing a 90-seat regional jet, now called the SpaceJet M90, since 2008, but the program has been mired in delays and budget overruns that have raised questions about its future. The Bombardier deal is expect to boost efforts to sell the SpaceJet.
Mitsubishi has booked about 400 aircraft orders, including options, and recently signed a memorandum of understanding with an undisclosed North American airline for 15 SpaceJets, but analysts believe that Mitsubishi needs to sell at least 1,000 of the planes to recoup its investment, which is expected to top 800 billion yen ($7.5 billion).
The purchase also removes a major competitor from the regional jet market and allows Mitsubishi to concentrate on contending with rival Embraer. The Brazilian company is focused on jets seating 100 or more, while Mitsubishi targets the smaller end of the market.
"This transaction represents one of the most important steps in our strategic journey to build a strong global aviation capability," said Seiji Izumisawa, president and CEO of Mitsubishi Heavy.
The maintenance and engineering capabilities of the Bombardier's CRJ regional jet program will further enhance critical customer support functions, a strategic business area for Mitsubishi in the pursuit of future growth, the Tokyo-based company said.
Bombardier's CRJ aircraft, which seats 50 to 100, is the mainstay of its regional jet program. About 1,300 of the planes are currently in operation around the world.
To be sold are CRJ's maintenance, support, refurbishment and marketing operations in Montreal and Toronto, as well as service centers in Bridgeport, West Virginia, and Tucson, Arizona.
Mitsubishi will also assume liabilities totaling $200 million from Bombardier, the two companies said.
Bombardier will retain its production facility in Mirabel, Quebec, to supply components and spare parts and to assemble its small backlog of orders. CRJ production is expected to conclude in the second half of 2020 following delivery of the current backlog. Bombardier will retain $400 million in liabilities related to the residual value it has guaranteed to the existing customers of CRJ aircraft.
The deal is expected to close in the first half of 2020 but remains subject to regulatory approval.
Bombardier's sale of its regional jet program follows the divestment of its larger C Series, which seats 100 to 150 passengers, to Airbus last year, and marks the Canadian company's exit from the commercial aviation business.
"With our aerospace transformation now behind us, we have a clear path forward," said Alain Bellemare, president and CEO of Bombardier. The company says it is going to focus on more profitable pursuits, such as the global rail business and business jets.
For Mitsubishi Heavy, Japan's largest defense contractor, the deal represents a departure from its tradition of "indigenous development" and an acceleration in its efforts to open itself up to new ideas and talent from outside the company.
The transformation has been driven partly by concern about economic uncertainty given Japan's aging and declining population, but also by the rise of China.
Mitsubishi Aircraft was established in 2008, the same year China entered the passenger jet market with the establishment of Commercial Aircraft Corp. of China, or COMAC. Mitsubishi officials judged that their best chance to enter the commercial aviation market would be before the Chinese competitor builds momentum.
Mitsubishi expects demand for more than 5,000 regional jets. Demand in North America will be mostly for replacing existing fleets, but the "Southeast Asian and Chinese markets will begin to grow," said Alex Bellamy, chief development officer at Mitsubishi Aircraft.