- Airbus has acquired 50.01% of the Bombardier C Series program.The deal was completed with zero up-front cash investment from Airbus.US-bound C Series jets are to be built in Mobile, Alabama.The deal was a response to Boeing’s trade complaint and a 299.45% tariff from US government. Airbus will own 100% of the C Series program within five years.
On Monday, Airbus and Bombardier announced that the two airplane makers would join forces on the next-generation C Series airliner.
The deal sees Airbus acquiring a 50.01% equity stake in Bombardier’s C Series program and producing US-bound C Series jets at its plant in Mobile, Alabama.
Production of all other C Series jets will remain in Canada, where Bombardier is based.
Mechanisms within the deal will see the Europe-based Airbus take 100% ownership of the C Series program within five years.
It’s a move that looks to be in direct response to the US Department of Commerce’s proposed 299.45% tariff on Delta Air Lines’ order for 75 C Series jets. The tariffs are a result of a complaint the American aerospace company Boeing filed in April.
Both Airbus and Bombardier believe that shifting production to Alabama will get around any proposed tariffs.
“This looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the US government,” Boeing said in a statement. “Our position remains that everyone should play by the same rules for free and fair trade to work.”
Airbus will make no up-front financial investment but will provide procurement, marketing, sales, and customer-support expertise.
- Thomson Reuters
In other words, Airbus just took ownership of one of the most advanced jetliner programs in the world for zero up-front cash.
“This is a win-win for everybody!” Airbus CEO Tom Enders said in a statement. “The C Series, with its state-of-the-art design and great economics, is a great fit with our existing single-aisle aircraft family and rapidly extends our product offering into a fast-growing market sector.”
“Not only will this partnership secure the C Series and its industrial operations in Canada, the UK, and China, but we also bring new jobs to the US,” Enders said. “Airbus will benefit from strengthening its product portfolio in the high-volume single-aisle market, offering superior value to our airline customers worldwide.”
Airbus and Bombardier held talks in 2015 over a potential equity sale of the C Series, but the two parties could not come to a deal.
With no up-front cash required and the proven operational capabilities of the production aircraft, the C Series became much more enticing for Enders this time around.
Monday’s deal is expected to close in the second half of 2018.
On September 26, the US Department of Commerce’s International Trade Administration called for a tariff of 219.63% on Bombardier’s C Series jet. A week later, the ITA called for another 79.82% tariff. In total, all C Series jets entering the US could be subject to tariffs of 299.45%.
The action was taken in response to a complaint filed by Boeing in April regarding Delta Air Lines’ order for 75 of the Canadian jets.
Boeing believes that its business was harmed by Bombardier using Canadian government subsidies to give Delta a price substantially below the cost of building the planes.
In its complaint, Boeing claims that Bombardier sold the CS100 for just $19.6 million. That’s far less than the $33.2 million the Chicago-based aviation giant says it cost Bombardier to make the plane and a mere fraction of the CS100’s $79.5 million sticker price. As a result, Boeing claims the Montreal-based company is dumping its product on the US market to the detriment of US aviation workers.
Bombardier and Delta have called the ITA’s preliminary decision “absurd.” Last week, on the airline’s earnings call, Delta CEO Ed Bastian said his company would not pay the proposed tariffs.
Bombardier and Delta argue that the Boeing complaint is baseless because no US airplane maker offers a product comparable to the CS100’s size and performance. (The C Series comes in 110-seat CS100 and 130-seat CS300 variants.)
In fact, Boeing hasn’t included the pint-size 737-600 in its annual price list for more than half a decade. And its last true 100-seat jet, the 717-200, was discontinued in 2005. According to Delta, Boeing’s only offer in response to the CS100 was for a fleet of secondhand Brazilian Embraer E190s it had taken as trade-ins from Air Canada.
Boeing counters by pointing out that Delta also agreed to an option for 50 planes that includes the possibility of converting to orders for the larger CS300, which is a competitor for Boeing’s 737 MAX 7.
Even though the aircraft is assembled in Canada, its wings come from Northern Ireland and half of its components, including its engines, come from the US.
The US International Trade Commission will issue a final judgment on the Commerce Department’s proposed tariffs in early 2018.
To kill a budding rival
On the surface, Boeing’s complaint is about protecting US manufacturing jobs. But dig a little deeper and it’s clear that the endgame for Boeing is to stop Bombardier, its groundbreaking jet, and its commercial-airliner business from getting off the ground.
In seeking to end Bombardier’s budding aspirations to become a third global aviation manufacturing powerhouse, Boeing is surely mindful of its failure to keep Airbus out of the US in the 1970s.
During that decade, the Toulouse-based Airbus was new to the game. The company’s medium-range A300B wide-body airliner survived its early days by subsisting on orders from the European nations that invested in the company.
In the US, the wide-body market was dominated by Boeing’s 747, the McDonnell Douglas DC-10, and the Lockheed L-1011 Tristar. Airbus was effectively frozen out of the US market.
That is until Frank Borman and Eastern Airlines took a chance on a lease for four A300Bs in 1978. Boeing didn’t shut the door on the European interloper.
Borman believed the A300B to be more efficient than its US counterparts, and the four-plane deal marked the beginning of Airbus’ rise to prominence in the US.
These days, Lockheed is out of the commercial-aviation business and McDonnell Douglas is part of Boeing. At the same time, Airbus is now half of a global aviation duopoly.
Boeing sees a lot of Airbus in Bombardier.
For years, the story around the Bombardier C Series program has been that of a critically acclaimed plane plagued by slow sales and development delays.
In 2015, Bombardier was forced to write down $4.4 billion. At the same time, the company took a $1 billion bailout from the Quebec government. In return, the provincial taxpayers took a 49.5% stake in the C Series.
At the heart of Boeing’s complaint is a deal that was widely seen as the order that saved the Bombardier C Series program from demise.
Looking for a blockbuster sale to help build traction for the plane in the US, Bombardier went all in on a pitch to United Airlines. Sensing the new competition, Boeing gave United a whopping 70% discount on the 40 737-700s. While large airlines like United never pay list price, 70% off is the aviation equivalent of a Black Friday sale price.
In January 2016, United announced the sale of 40 737-700s followed by an order of another 25 of the same plane in March. (Oddly enough, United realized several months later that it actually didn’t want any of these planes and converted them to four of the larger 737-800s and 61 737MAX jets.)
Finally, in April 2016, Bombardier struck pay dirt. Delta Air Lines ordered 75 CS100 airliners in a deal worth up to $5.6 billion. In addition, Bombardier and Delta agreed to an option for 50 additional jets.
With the Delta order, Bombardier not only found a US launch customer for the C Series but also had the blockbuster deal it needed to validate the attractiveness of aircraft to other prospective buyers. For Boeing, the strategy was simple. Undo the order that saved the C Series and keep it from gaining traction in its backyard.
But now that plan may have royally backfired on Boeing. Instead of keeping the Canadian jet grounded, Boeing all but pushed C Series into the arms of its greatest rival.