Oct. 12, 2015, © Leeham Co.: The news agencies, stock markets and aerospace analysts last week went wild when Reuters reported there were talks going on between Bombardier and Airbus whereby the latter would take a majority stake in the CSeries program.
Within hours, both companies said talks had ended. As could be expected, the stock went into another tailspin.
Then United Airlines said it wants pilots to approve a contract, and is dangling a 100-seat airplane order for mainline operations as an incentive. The CS100 fits into this category, as does the Embraer E195 E2.
It is worth recapturing reasons BBD finds itself in its current predicament.
Missed opportunities and bad decisions
Bombardier faced a very difficult task of jumping from the regional airline business to the majors with its CSeries. The airplane was designed with Northwest Airlines in mind, which had a huge fleet of old Douglas DC-9s. But the original concept, the C110 and C130, was “just another airplane,” technologies of the 2000s and engines to match. The market rejected the concept. But when Pratt & Whitney developed the geared turbo fan and BBD decided to use aluminum lithium for the fuselage, composite wings and advanced systems, the design became attractive.
Management believed that if they built it, customers would come, particularly without offering the plane at prices in the $20m-$30m range. Instead, BBD offered the renamed CS100 and CS300 in the low $30m range.
These were two key miscalculations right at the start of the program.
Officials also didn’t hire salesmen with experience with the major airlines, instead sending its regional airline experts into the field. Another miscalculation.
Focus shifted to the CSeries sales to the detriment of further sales of the Q400 and CRJ, which were needed to provide cash for the development of the CSeries.
Officials didn’t think Airbus or Boeing would respond other than by dropping prices on the A320 and 737 families. Instead, the companies put new engines on the airplanes and dropped prices on the existing products.
The miscalculations just kept piling up.
Missed opportunities did as well.
The Great Recession began in September 2008. The CSeries was launched at the Paris Air Show in 2009. Bad timing. Airbus responded with aggressive pricing and a campaign by John Leahy, Airbus COO-Customers, to undermine and belittle the airplane. The Recession caused many airlines to put equipment decisions on hold, and Northwest eventually merged into Delta Air Lines. Poor pricing decisions killed some deals, Airbus killed some with its stiff competition and the economy killed others. Through it all, a weak balance sheet and executive reluctance to approve aggressive deals killed still more.
Poor sales of the Q400 and CRJ suppressed vitally needed cash flow. Program delays ballooned costs by US$2bn and delays stretched to two years.
Key executives left and were replaced by others with no airline sales experiences—and in some cases, no aviation experience at all.
This only scratches the surface. The CSeries is a good airplane. But management made just about every bad decision possible, leading to the position the company is in today.