Bombardier announced Wednesday the end of a nearly 40-year partnership with Tag Aeronautics to sell its aircraft in the Middle East and North Africa, saying it will now sell directly to customers. The breakup was described as amicable, but the related restructuring of several customer deals resulted in the cancellation of orders for 24 business jets worth US$1.75 billion and options for 30 more.
As well, Bombardier will take a special charge of US$278 million in its 2015 fourth quarter financial results. "We are adapting our business model to capitalize on growing market opportunities around the world and will focus on direct interaction with our customers," chief executive Alain Bellemare said in a statement. The move is part of an ongoing restructuring at the beleaguered Canadian manufacturer, as it struggles to get its new flagship CSeries jetliners off the ground after repeated delays and cost overruns. Tag, which sold Challenger and Global series business aircraft for Bombardier in 21 countries, will itself continue to be a Bombardier customer, said Tag Group chief executive Mansour Ojjeh. Bombardier accounts for about one-third of all business jets sold in the Middle East and North Africa.
The company said it expects to more than make up for the cancelled orders by selling those business jets "at improved margins." Its overall business jet sales have brought in a steady cash flow to help finance the development of its flagship CSeries -- the first new medium-range passenger jet in 25 years, which aims to go head to head with the workhorses of the aviation market, the Airbus A320 and Boeing 737. But slowing global demand forced Bombardier to cut production of its Global jets last year.
Meanwhile, the company has not secured any new orders for its CSeries in more than a year. The current number of firm orders for the aircraft, which can seat up to 160 passengers, is 243. The first plane is scheduled to be delivered to Lufthansa subsidiary Swiss in the middle of 2016. In 2015, Bombardier also brought in a new chief executive, raised billions of dollars in debt and equity sales, and secured a lifeline from the government of Quebec, where it is based, in exchange for a 49.5 percent stake in the CSeries program and a slice of its rail unit.