(Reuters) – Bombardier Inc said on Tuesday it will sell its money-losing regional jet business to Japan’s Mitsubishi Heavy Industries Ltd (MHI) for $550 million in cash, in a deal marking the Canadian plane and train maker’s exit from commercial aviation.

Montreal-based Bombardier has been selling off its weaker-performing commercial plane programs aimed at airlines to focus on profitable business jets and passenger rail cars. The company faced a cash-crunch in 2015 while bringing a larger narrowbody to market.

As part of the deal with Mitsubishi, which is expected to close in the first half of next year, the Japanese firm will also take over a $200 million debt.

In an interview, Bombardier Chief Executive Alain Bellemare said some proceeds from the deal would go toward paying down debt, although he would not offer specifics.

“I’m not going to do the math, but that’s clearly the game plan,” he said by phone.

Bombardier has an additional $400 million liability from residual value guarantees provided to airlines on the regional jet program.

Bombardier will continue to assemble its regional jet planes (CRJ), but will stop making the aircraft in the second half of 2020, after it finishes delivering its remaining backlog of 42 orders.

CRJ’s profitable aftermarket sales, engineering expertise and heavy maintenance centers in the United States, would be useful for Mitsubishi, which is trying to develop and certify its delayed regional jet program, the MRJ.

“It’s an important step for us as a whole,” said Dan Lochmann, a spokesman for MHI.

Bellemare said about 400 workers who produce the CRJ in the Montreal-area would likely find other jobs, such as with Europe’s Airbus SE which acquired Bombardier’s former flagship commercial plane last year. The plane is now called the A220.

“We believe there are plenty of opportunities to reposition these people,” he said.

Mitsubishi is “committed” to Bombardier’s workforce, such as its engineers and customer support workers, Lochmann said by phone from Japan. He could not comment on CRJ production workers.

Bombardier and Mitsubishi had previously said they were holding talks over the regional jet program.

Mitsubishi is trying to develop its MRJ program, which has been rebranded as “SpaceJet.”

The Japanese firm is trying to certify the plane, which has been delayed by several years with its first customer, ANA Holdings Inc, now expecting delivery in 2020 rather than in 2013 as originally planned.

Proceeds from the deal exceeded some analysts’ expectations.

“We see the transaction as positive as it generates a return better than we had anticipated and ends the company’s exposure in a program which we believe was a drag on earnings,” AltaCorp analyst Chris Murray said in a note.

Shares of Bombardier pared some of their earlier gains and were up 2.74 % to C$2.25 ($1.71) in afternoon trading in Toronto.

Source: Read Full Article