Bombardier in advanced talks to build Saab surveillance aircraft in Canada, CEO says

Bombardier Inc. BBD-B-T is in advanced talks with Saab AB on producing the Swedish company’s GlobalEye surveillance planes in Canada, as the Quebec private jet maker readies a significant expansion of its burgeoning defence business.

“GlobalEye is our priority right now,” Bombardier chief executive Éric Martel said Friday during a business event organized by The Globe and Mail in Toronto, adding that his team was in Sweden again last week. Bombardier is “focused on building and finishing GlobalEye here in Canada,” he said.

The Montreal-based company, one of the world’s biggest manufacturers of luxury jets, is now in the midst of a major buildout of its defence unit and scouting for sites in Canada to house a new factory dedicated for military work. The plant would mirror its existing defence-manufacturing operation in Wichita, Kan.

Bombardier had already disclosed that it was in talks with Saab about taking on a bigger slice of production on the companies’ joint GlobalEye surveillance plane program as a way to capture more economic value from the alliance. Now, Mr. Martel is signalling that those negotiations are at a mature stage.

Ottawa advances talks with Saab over possible GlobalEye purchase

At the moment, Bombardier’s role in the GlobalEye program is limited to supplying the airframes (stripped-down versions of its Global 6000 jets assembled at Toronto’s Pearson airport) and providing engineering collaboration. Saab is the main manufacturer and systems integrator – making the guts of the plane, including radar, sensors and command controls in Sweden.

Last year, Saab executives said the entire GlobalEye aircraft could be built in Canada if the Department of National Defence places an order for the jet. Such a move would mean another production line for the aircraft in addition to the existing one in Sweden.

Canada is moving in that direction.

On Friday, the federal government announced that it struck a preliminary agreement with Saab setting the terms for detailed negotiations toward the potential acquisition of six GlobalEye surveillance planes for the Royal Canadian Air Force. Prime Minister Mark Carney had already identified Saab in May as the preferred supplier for the aircraft.

Orders for the plane have poured in as military spending grows around the world. The North Atlantic Treaty Organization announced earlier this year that it would open negotiations with Saab for the purchase of up to 10 GlobalEye planes at a list price of €550-million each.

While Mr. Martel is hot on Bombardier deepening its ties to Saab on GlobalEye, the CEO has been much cooler to the prospect of a joint venture between the two companies on Saab’s Gripen fighter jet. Ottawa is weighing whether to scale back Canada’s order of 88 U.S.-made F-35 fighters and buy the Gripen instead.

Saab wants to further expand production capacity of the supersonic fighter outside of Sweden and has pitched the idea of building it under licence in Canada if the federal government buys the aircraft. A similar pact exists in Brazil, where local plane maker Embraer SA is assembling 15 Gripens as part of the country’s initial order of 36 jets.

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Mr. Martel said Bombardier would be open to supporting Saab on the Gripen by taking on a share of more challenging work on the jet. But he said Bombardier is already stretched for capacity in its own factories and that it has to be careful with its capital.

“Doing a fighter business is a different thing,” Mr. Martel said Friday. “We would not be able to do it from A to Z ourselves. First of all, it requires a lot of support and a lot of money. We have other priorities with our money … to make sure we protect the business we’re in.”

Bombardier has found itself on the defensive of late.

Earlier this month, U.S. President Donald Trump attacked the company in a social media post, floating the idea of a ban on Bombardier jet sales in the United States. “Their products aren’t good enough!” Mr. Trump wrote. “If they want our Market, they must build here, and stop treating America like a ‘piggy bank.’ ”

In January, Mr. Trump accused Canada of unfair trade practices and said the U.S. would decertify all Canadian and Bombardier-made jets unless Transport Canada approved aircraft made by Georgia-based Gulfstream Aerospace Corp. Gulfstream is Bombardier’s main competitor.

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Asked why the U.S. President appears to be obsessed with Bombardier, Mr. Martel highlighted the rivalry with Gulfstream and the fact that Bombardier does well in the U.S. The Canadian company sells more than half of its production volume into the American market, including to wealthy individuals and corporations.

“I guess he hears about our planes all the time,” Mr. Martel said. “We’re top of mind.”

Bombardier has responded to Mr. Trump’s threats by insisting it is a strong contributor to the U.S. aerospace industry, directly employing 3,500 workers in more than 20 states, and supporting thousands more U.S. jobs through a network of 2,800 suppliers and its growing footprint in the country. Among Bombardier’s major American suppliers are engine makers GE Aerospace GE-N and Honeywell HON-Q, in addition to Parker Aerospace PH-N, Collins Aerospace COL-N and GKN GKNLY.

Any new American duties aimed at the company, or any ban on its products, would probably cause more pain south of the border than in Canada in terms of jobs and layoffs, according to Mr. Martel. All of its jets have sizable U.S. content – typically 40 per cent of the plane or more, National Bank analysts estimate.

Mr. Martel said the company has been “spending quite a bit of time” on outreach to ensure those facts are known.