There was a rally interesting development last night in the trials and tribulations of the Bombardier C Series. If you’re not a regular reader of my blog or an aviation geek, you may have never heard of the C Series. So, let’s cover the cliff note version.
The C Series is the brainchild of Bombardier, the Canadian airplane manufacturer. Looking to fill a gap between existing planes in the market, the C Series is meant to hold roughly 100-120 passengers. There are smaller regional jets (Bombardier makes a decent chunk of them along with Embraer) and there are larger narrowbody jets (Airbus A319 and Boeing 737). The C Series fits neatly between the two categories.
Bombardier has had trouble getting the new plane into service. It’s hard to build a new plane, and Bombardier experienced all the growing pains they could, and then some. They had a launch customer in Europe (Swiss Air). And, they recently had a large purchase order from Delta for 75 planes. That order appeared to save the C Series, and maybe Bombardier. Bombardier has been heavily subsidized by the Canadian government to get this far.
Then, just a couple weeks ago, Boeing filed a complaint with the US Department of Commerce, alleging unfair trade practices by Bombardier. Essentially, they claimed Bombardier was selling the planes to Delta at a loss with the Canadian government footing the bill. The government agreed and slapped a hefty 220% tariff on the plane. In real dollars, that’s an extra $40 million-ish per plane sold by Bombardier to an airline in the US.
Given the financial shakiness of Bombardier, this started to have the feeling of a death march for the C Series. Sure, there were final hearings. But, it’s not like the current administration is taking such a global view right now. Bombardier was unlikely to get help from anyone other than Delta in the US. And, that probably wouldn’t have been enough.
And Then, Last Night Happened
Bombardier and Airbus worked out a lifeline that appears to allow the C Series to be built in the United States. Airbus has a final assembly plant in Alabama, where they plan to spin up another assembly line for C Series planes destined for US airlines (hi, Delta!).
For a more complete understanding of the deal, see this article by Jon Ostrower on CNN Money or this WSJ article (you might have to Google the title to get an unlocked version). I’ll be honest, I think the WSJ article paints a really dour picture.
Sure, Bombardier is in a bad spot. And, they only own about a third of the C Series venture going forward. But, they didn’t really own 100% before this started given all the money owed to the Canadian government. And, the US tariffs had the potential to wipe out the C Series.
However, there’s plenty to be excited about now. This quote from Jon’s article points out:
The arrangement potentially opens the door to U.S. carriers to sign up for the jet. JetBlue Airways and Spirit Airlines, both large Airbus operators, voiced support for Bombardier’s position against the Department of Commerce.
The only thing I found puzzling is that it appears Bombardier may be forced to contribute cash over the next couple of years. Considering that Airbus got 50% of the C Series and got Bombardier to put another pound of flesh on the scale, this seems like a good deal for the European-based airplane manufacturer. Given the corner Bombardier found itself in, this still may end up being a very weird win-win-win (the Canadian government has a legit shot to be repaid now).
The Final Two Pennies
I’m a big Boeing fan. I’ve been a shareholder for quite some time and I’m bullish on them. The Boeing 787 Dreamliner is a game-changer. And, the 737 MAX is bound to keep the best-selling plane of all-time cranking out sales. I still think this was a bit of a bush league move by Boeing.
They literally have no planes that compete with Bombardier. I can’t quite imagine how they would have shown damages to the Department of Commerce in that there’s no plane Boeing has even announced (let alone is selling) that fits what Delta wanted from Bombardier. And, pretty much every major airplane manufacturer sells the first frames on a new build at a discount to the launch customers until the product is proven. If that’s the standard, Boeing’s hands aren’t any cleaner than any other.
Embraer, another foreign airplane manufacturer, would be the most likely to benefit from the Boeing claims. They have an entry similar to the C Series that Delta may have considered if the tariff held up. I guess the argument is that a public company should avail itself of any means necessary to succeed?
At any rate, I don’t think the final chapter has been written on the C Series saga. I would imagine the occupant of the White House might not be pleased with this move, but who knows? Bombardier has a lifeline, Airbus has something to poke Boeing in the eye with, and Delta appears poised to get the cheap airplanes they want.
Featured Image by sloppyperfectionist via Flickr
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