Mitsubishi in talks with Bombardier regarding possible regional jet deal [UPDATED]

PHOTO: Bombardier’s CRJ900/Bombardier

MONTREAL – Mitsubishi Heavy Industries Ltd. confirmed Wednesday it’s in talks involving Bombardier Inc.’s regional jet business but would not reveal details of the discussions.

The Japanese company commented came after a media report said Mitsubishi was in advanced negotiations to acquire Bombardier’s CRJ regional jet program.

Mitsubishi cautioned that no decision has been made on any possible transaction.

“If ever any such decision is made, we will disclose as necessary in accordance with the applicable stock exchange regulations,” Mitsubishi said in a brief statement.

Bombardier, which also confirmed the talks Wednesday, recently said it would explore strategic options for the CRJ program.

“Before any agreement can be reached further review and analysis by Bombardier management and approval by Bombardier’s board of directors are required,” the Montreal-based company said.

It added that Mitsubishi must also complete its due diligence review and its own analysis and approval process, which are outside of Bombardier’s control.

Earlier this year, Bombardier chief executive Alain Bellemare said the continuation of its regional jet program hinged on whether the company could fill up the CRJ’s partly blank order book.

Once a cash cow for the Montreal-based company, the CRJ now struggles to generate profits. For the past five years, Embraer SA’s E175 narrow-body aircraft has dominated the U.S. market, where the majority of regional jets are sold.

Bombardier is placing renewed focus on its business jets – such as the Global 7500 – whose robust sales and high earnings margin in 2018 propelled the company to its first annual profit in five years. It sold a majority stake in its C Series commercial aircraft program last year to Airbus, which rebranded it the Airbus A220.

“This would be the last remaining sale within the commercial aircraft segment, allowing Bombardier to divert focus on the ramp-up of the Global 7500 and on the transportation division,” said RBC Dominion Securities analyst Walter Spracklin of the CRJ talks.

Spracklin said Mitsubishi, which has been developing its own regional jet program that has been plagued by delays, is a “natural buyer.”

“This purchase would allow Mitsubishi an opportunity to learn from the widely successful CRJ regional jet,” he said.

The CRJ brings in about $1 billion in revenue for the plane-and-train maker, and roughly breaks even on earnings before interest, tax, depreciation and amortization, he said.

Mitsubishi likely sees major market potential in Asia, where regulations that require carriers to operate at least 25 regional aircraft before graduating to larger planes would make the CRJ a stepping stone for the company, said analyst Benoit Poirier of Desjardins Securities.

North America also holds promise, with the CRJ and Embraer’s E-Jet family the only two programs that satisfy contract agreements between major airlines and pilot unions limiting the number and size of aircraft that may be used by an airline’s regional unit, he said.