Leeham News and Analysis
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Leeham News and Analysis
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Pontifications: New war of words erupts
By Scott Hamilton
July 11, 2016, © Leeham Co., Farnborough Air Show: The war of words between Airbus and Boeing is legendary, and it continued unabated today, the first day of the Farnborough Air Show.
- See my column in Forbes for a rundown of the first day’s orders at the Farnborough Air Show.
Boeing continue its refrain during its press briefing that its airplanes are better than Airbus. Airbus returned fire moments later in its own press conference that followed Boeing’s.
But the more interesting war that is emerging is between Embraer and Bombardier.
Unfair competition
EMB unleashed its arsenal shortly after BBD won a major order from Delta Air Lines for up to 75 CS100s. Embraer, along with Boeing, offered used E190-E1s and 717s. But BBD walked away with the deal after the Province of Quebec pledged to invest US$1bn in the C Series and BBD asked the federal Canadian government for another $1bn.
EMB cried foul, especially after BBD announced an “onerous contract provision” charge of US$500m in connection with the Delta, Air Canada and AirBaltic orders announced in the first five months of this year.
This proved, EMB claims, that the Quebec and Canadian governments are subsidizing BBD, allowing the company to sell the C Series under cost. EMB further claims this is in violation of World Trade Organization rules. A complaint may be filed by Brazil on Embraer’s behalf, depending on what evidence emerges in the coming months.
Bombardier, of course, denies this.
But having fired this salvo, EMB fired another round during its press briefing today. The volley was much more low key, but it represents a change in tactics nonetheless.
EMB officials included direct cost and maintenance comparisons of the EJet E2 vs the CS100. Previously, EMB officials spoke in more generalized terms about “the competition.” This approach is closer to the long-running battle between Airbus and Boeing.
With a new aggressive approach to sales because of the new management at Bombardier, Embraer is taking a harder approach.
It’s a subtle change to those who haven’t been closely watching Embraer. But it’s a shift nonetheless.
In the meantime…
Embraer’s staggered first class seating. The seats are 19.5 inches wide with ample leg room. This allows EMB to have a 2×2 first class.
Embraer also faces a new competitor in the below 90-seat market, Mitsubishi Aircraft Corp’s MRJ90. This has been a bit below the radar because of MAC’s three-year delay with the MRJ. But activity is picking up.
The MRJ90, after interruption to its flight testing, is ramping up activity. The company now has 477 orders and commitments for the MRJ90. The Embraer E175-E2 is the direct competitor. There are 150 identified firm orders for the E175-E2; EMB updates its 2Q order book Thursday.
The MRJ90 begins flight testing at Moses Lake (WA) this summer. LNC visited the E2 cabin mockup today and will visit the MRJ mock up later this week. Like the E2, the MRJ has 2×2 configurations with 18-18 ½ inch seats. MRJ’s first class is 1×2, which was the case with the E1. EMB figured a way to have 2×2 first class seating. The seats are 19 ½ wide and staggered.
We’ll be able to compare the two after this visit.
EMB took the opportunity to tout larger overhead bins in the new E2 than the E1. Officials say the space is greater than that of the C Series.
Embraer are a bunch of hypocrites…they are happy to get cut-rate financing at the expense of others, but cry unfair competition when their competitor just matches their behaviour…just take a look last time they and bomber got in a fight about 15 years ago…they were winning orders at bombers expense with subsidized cut-rate financing, and when the canadians matched their cut-rate financing and they lost an order on an even playing field, they cried unfair competition. Embraer needs to be very careful here, they receive many subsidies from Brazil as well, they are not the angels they claim
Subsidies, and all other forms of communism need to die. No company should be supported on the backs of people who already pay taxes.
I’m sorry, but you need to study the Brazil economy a little bit more. It is almost a miracle that Embraer exists in Brazil. The government there overtaxes the companies and have a very high bureaucracy on all processes. They do very little to help, and the only thing they do is to help financing some sales with low interest rates, that in the end is in fact helping foreign airliners with Brazilian tax payers money. That’s so true, that Embraer is slowly moving its production lines to other countries, such as US and Portugal. Embraer is a public company with investors from all over the world, without a central controlling force. Even the KC390, that would be some kind of government funded program, Brazil is not complying with its obligations, and is owing almost 2 billion BRL to Embraer.
Funny that Boeing can loose 33 billion so far on the 787. Aibus a good 20 billion on the A380 and Bombardier sells at a much lower loss per hull and its a big deal?
Hmmm,
More like over 25 billion on the 380 but point taken.
Ok, a billion here, a billion there, a tax write off and we all still pay (grin)
And I assume Boeing writes off the excess on the KC46 deal so while the AF does not pay we do. hmm, got to love it.
Granted going off on a tangential rant.
Seems that BBD and the media have had a muted approach to the CS300 certification from Transport Canada.
As for the accounting the rules are different for traded companies in Canada so they have to declare the loss immediately. The US and Europe have a different set of rules to follow so you cannot compare apples to oranges.
As for Brasil it is a completely government funded organization. Look at the KC-390 which had to stop flight testing due to lack of government funds.
Interesting take from ALC (now Plueger sp?) who says Boeing is now taking the A321 seriously and sounds like the 737-10 gets launched.
Also weights in on the MOM and possibilities.
Still some personal issue with Hazy and credibility on the A330NEO numbers. Not convinced its going to go anywhere near the 1000 Hazy predicts.
It won’t. Hazy is a wee bit off about the A330NEO numbers, and I think Airbus swallowed it hook, line, and sinker. I heard him say that in the beginning and thought “no way”, especially not with the A350 and 787 out there that will dust it up pretty good. In fact, the only way the A330NEO, I thought, would get anywhere near that number is to squeeze out the A350. Some will say the 787 is at risk but I don’t think so, at least not as much at risk as the A350.
I read here the same people and the same views .. Canadians seem to associate aviation industry with subsidies, just as the Europeans do with agriculture.
Possibly, Bombardier designed a plane with a wrong technological level, considering its category, as well as Boeing did with 787. But Boeing had margins that Bombardier or Embraer can only dream of.
At the end of the day, I believe that Embraer will have a competitive product in terms of performance and time-to-market, with lower development and production costs. Will it be enough?
airbus wouldn’t exist without government subsidies. Boeing gets heavy subsidies as well.
Boeing sure does now. More than Airbus.
If you can’t beat them one up them.
Scott, About the Forbes article.
What is the advantage for Virgin to not finally outright cancel those A380 orders?
There must be some reason they haven’t done it yet, but I cannot figure out what that reason might be.
@Aeroninja Me neither.
Negotiations to get an aircraft that works for them?
Swap the A380s for the A350s.
Probably get their deposit back if they don’t cancel and make the numbers look worse even though we have done the math already.
Not that I ever think there are ulterior motives in any of this.
Transfer to Virgin Australia!?!?
Qantas is chopped there order short as well, I don’t know that works for or fits in with all the other A380 offering to Oz (Emirates, Singapore? and one Chinese as I recall ) as well as Qantas.
It what, 25 million people? We have more than that in California I think.
Here is what Airbus has to say to Boeing:
https://www.youtube.com/watch?v=xWaTjYpczKQ