Jan. 21, 2016: United Airlines elected to order 40 Boeing 737-700s instead of the Bombardier CS100, it was announced today. It’s a huge blow to Bombardier, which was hoping to land this order to give a big boost to the CSeries program.
The reasons are obvious, even to an outsider, and don’t speak to the attributes of the CSeries, which remain compelling.
Here’s what we believe was behind the United decision:
- The price of oil, now approaching $20/bbl, makes purchasing the CSeries less compelling in a present-day analysis. While the long-term perspective continues to argue for the CSeries, capital cost is also a factor–which brings us to…
- The price of the airplane. The 737-700 is now a cheap airplane for Boeing to produce and the CSeries is not. Even though we estimate that BBD’s write-off of $3.2bn in development costs enables BBD to lower the price of the CSeries by about $5m, to the upper $20m, Boeing has a fully amortized 737-700 and can still undercut the price. We’ve already heard that the price may have been in the low $20m, which we think may be aggressive, but whether it’s mid-$20m or lower, we believe Boeing would have had no problem undercutting BBD.
- Commonality was a Boeing advantage.
- Boeing is a known factor to United. BBD’s product support for a new fleet type is an unknown. At $120 fuel, this may not be much of an issue. At $25 fuel, it is a factor.
- Boeing could go back to existing UAL orders and offer new discounts or concessions. Bombardier can’t.