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Bombardier has agreed to sell its Dash 8 aircraft program, as well as its Business Aircraft Training (BAT) program, in a pair of blockbuster deals with two other Canadian firms as Bombardier approaches the final phase of its turnaround plan.
Longview Aviation Capital Corp., parent company to Viking Air Limited, is set to acquire the Dash 8 program through an affiliate, at a cost of roughly $300 million.
The agreement includes the Dash 8 100, 200 and 300 series, as well as the in-production Q400 program.
Meanwhile Montreal-based CAE has agreed to acquire BAT for an enterprise value of US$645 million.
The move will allow CAE to address the training market for customers operating Bombardier’s more than 4,800 business jets, one of the largest and most valuable in-service fleets of business aircraft in the world.
“With our heavy investment cycle now completed, we continue to make solid progress executing our turnaround plan,” said Alain Bellemare, president and chief executive officer, Bombardier Inc.
“With today’s announcements we have set in motion the next round of actions necessary to unleash the full potential of the Bombardier portfolio. During the earnings and cash flow building phase of our turnaround, we will continue to be proactive in focusing and streamlining the organization, and disciplined in the allocation of capital. I am very proud of what we have accomplished, and very excited about our future.”
Both transactions are expected to close by the second half of 2019, following the usual regulatory approvals.
The agreements serve to streamline the company, and will allow Bombardier to focus on growth opportunities in its Transportation, Business Aircraft and Aerostructures segments, the company said. Various measures will also see Bombardier reduce the size of its workforce by approximately 5,000 positions over the next 12 to 18 months.
With the sale of the Dash 8 program and the previous transfer of the C Series program to Airbus, Bombardier’s Commercial Aircraft division will focus its full attention on the CRJ program, the company said.
The sale of Bombardier’s Dash 8 program includes rights to the de Havilland name and trademark, and will make Longview Aviation Capital the largest commercial turbo-prop aircraft manufacturer in North America, according to a news release.
“The Dash 8 turbo-prop is the perfect complement to our existing portfolio of specialized aircraft, including the Twin Otter and the Canadair CL 215 and 415 series of water bombers,” said David Curtis, CEO of Longview Aviation Capital.
“We see enormous value in the de Havilland Dash 8 program, with these aircraft in demand and in use all around the world.”
As part of the agreement, Longview will receive all assets and intellectual property and type certificates associated with the Dash 8 program.
Upon the closing of the transaction, Longview will also assume responsibility for the worldwide product support business–covering more than 1,000 aircraft either currently in service or slated for production.
Longview will continue to independently operate the program at the original de Havilland manufacturing site located at Downsview, Ont., upon closing of the transaction.
Bombardier sold the Downsview site earlier this year but, under the terms of a lease with the new owners and a licence from Bombardier, production will remain on-site until at least 2021, according to Longview.
As part of the transaction, Longview said it “looks forward to welcoming Bombardier employees currently associated with the production, support and sales of the Dash 8 program.”
“We are committed to a business-as-usual approach that will see no interruption to the production, delivery and support of these outstanding aircraft,” said Curtis.
“With the entire de Havilland product line reunited under the same banner for the first time in decades, we look forward to working with customers, suppliers and employees upon close of the transaction to determine what opportunities lie ahead.”
Longview said it will work closely with Bombardier until the closing of the transaction to ensure a seamless transition for employees, customers, suppliers and other stakeholders, with no interruption in production, delivery and support of the aircraft.
This transaction builds on Longview’s track record of acquiring and successfully operating significant aircraft manufacturing, parts and serving programs including the Twin Otter program and the Canadair CL 215 and 415 waterbomber series.
CAE’s acquisition of BAT includes a modern fleet of full-flight simulators (FFSs) and training devices covering the Learjet, Challenger and Global product lines, including the latest large cabin Global 5500, 6500 and 7500 business jets.
In its first full year following the closing of the transaction, the acquisition will provide CAE high single-digit percentage earnings accretion and will be accretive to free cash flow, the company said in a news release.
It is also expected to be accretive to CAE’s Civil segment operating income (SOI) margin by approximately 100-150bps.
“This transaction represents a win-win for both companies, resulting in enhanced core focus,” said Marc Parent, CAE’s president and CEO.
“We look forward to having increased addressability in the large market of Bombardier business jet operators, and to providing customers with a world-class training experience.”
In addition to the agreement to acquire Bombardier’s BAT business, CAE has agreed to pay US$155 million to monetize its existing future royalty obligations under the current Authorized Training Provider (ATP) agreement with the business jet manufacturer.
This also involves the extension of CAE’s ATP agreement to 2038. The monetization represents the discounted sum of royalties payable by CAE over the next 20 years, and the transaction is expected to close by the end of CAE’s current fiscal year.
In view of the expected timing of the transactions, CAE said its outlook for its current fiscal year 2019 remains unchanged.
The transactions are aligned with CAE’s capital allocation strategy, to balance growth investments with cash returns to shareholders, while maintaining CAE’s investment grade profile and a target return on capital employed of 13 per cent by fiscal year 2022.
“Market fundamentals in business aviation are strong and the business we are acquiring is well-supported by a large installed base,” said Parent. “We are expanding our position in the largest and fastest growing segment of business aviation training at an opportune time.
“We welcome the highly-talented employees of Bombardier Business Aircraft Training. We value your expertise and customer focus; as part of the CAE team, you will continue to provide best-in-class training to pilots and technicians for Bombardier business aircraft.”
CAE said the Bombardier BAT business will be integrated smoothly with CAE since its operations are already co-located within CAE’s Dallas and Montreal training centres.
With this agreement, CAE will be adding 12 Bombardier business aviation full-flight simulators to its training network (including one deployment already planned for CAE’s fiscal year 2021), for a total of 29 business aviation FFSs available for training worldwide, with further growth planned in the near- to mid-term.
CAE operates more than 80 business aviation full-flight simulators in its training network.
The acquisition increases CAE’s ability to address the long-term and growing market demand for business aviation professionals.
CAE estimates that there will be a need for 50,000 new business aviation pilots over the next 10 years.
CAE is financing the acquisition with a combination of cash on hand, drawing on its existing bank facility and new committed term loans.
TD Securities acted as exclusive financial advisor to CAE.