May 8, 2017, © Leeham Co.: The fallout and speculation continues after Boeing filed a complaint April 27 over Bombardier’s deal for 75+50 CSeries with Delta Air Lines.
The complaint was filed with the US government and the International Trade Commission.
There’s already speculation that Canada will retaliate by excluding Boeing from defense contracts and competition.
Bombardier and Canada vow to fight the allegations that BBD “dumped” the CSeries in the USA to win the Delta deal. “Dumping” is selling a product for less than it’s purchased in the home market.
Boeing claims Bombardier sold the CS100 to Delta for $19.6m, a figure BBD says is wrong. Boeing says the production cost is $33m and Air Canada bought the airplane for $30m.
The complaint is more than 1,000 pages long (the public document is a mere 147), but this is the crux of the issue.
This will likely take years to resolve.
What does this do to the Delta deal?
According to one source who has been in the airplane sales contract business for decades says that typically, any unexpected taxes or tariffs are passed through to the buyer—in this case, Delta.
While this source doesn’t know what’s in Delta’s contract, he says it is possible a “material adverse change” clause would allow Delta to cancel the deal.
The first airplanes are scheduled for delivery next year. Boeing wants a decision from the US and ITC before the first deliveries.
Whatever the outcome of Boeing’s complaint, Bombardier has bigger problems. It’s still not pulling in orders.
Granted, Airbus and Boeing aren’t doing too well this year, after a poor performance last year. But Bombardier was counting on momentum after the Air Canada and Delta deals, and it’s just not arrived.
LNC previously published reports from a long interview with the leasing company AVi8. The principal focus was on wide-body supply and demand. These stories are here and here. We drifted off onto other topics before ending the interview, and one of them was the CSeries.
AVi8’s chairman and CEO, Ray Sisson, and president, Ed Wegel, love the airplane but have their doubts about its future.
“The real question is, what happens with the progress of the CSeries program?” says Wegel. “Are they going to be able to sell enough of them in the timeframe they need to? Delta has committed to the airplane and the word is that Bombardier took a significant hit to deliver those to Delta.
“The positive news is that early reports on the airplane show it’s performing a little bit better than expected,” he said.
“Ray has spent a lot of time up there with the factory guys looking at it. Longer term, I think it’s a great airplane,” Wegel said. “But can you get enough orders? The regionals can’t fly it because of its size. [The CS100 is] better than an A318. It’s better than a 737-600. I think the airplane long-term is going to be good if Bombardier can keep the program vital enough to get to that point.”
“The good news is, they have a great aircraft, and a great aircraft that is positioned where no one else is,” he says. “It’s a good aircraft for what it does and nothing else competes with it unless you want to get cheap 737-700s and A319s, but there just aren’t that many of those around.”
But the CS300 competes head-to-head with the A319ceo/neo and the 737-700/7.
“As you go toward the larger CS300 variant and begin to compete head-to-head with Boeing and Airbus, the issue of the massive installed global fleet base, and the duopoly’s ability to price campaigns to win are significant issues for them to overcome,” Sisson says.
Although the CS300 can seat up to 160 passengers in high-density, single-class, encroaching on the larger A320 and 737-800/8, and a fully competitive CS500 is often discussed, Sisson believes Bombardier will only be asking for trouble if it takes on Airbus and Boeing in this heart-of-the-market sector.
“If they were trying to do another regional jet or trying to compete head-to-head with another 737 [800/Max8] or A320, they’d be dead in the water,” he says. “In the 100- to 150-seat market, it’s the CSeries and the CSeries. If you think about airports like London City, it’s the perfect aircraft.”
Embraer’s E190/195 cover the very low end of the 100-125 seat sector and the E195-E2 has 12 more seats, which places it squarely in the middle of the sector. (The E190-E1/E2 only taps into the sector in a single-class configuration and falls under 100 seats in two classes.)
Embraer certainly believes the EJet is a competitor with the CSeries. And BBD views the EJet as competition.
“Bombardier has to make this program a success,” Sisson says. “I think they will. It’s the future for them in commercial aviation. It’s either do this or go home.
“I think they might have thought the aircraft would sell itself because it was unopposed in the market. [But] that’s not how airlines necessarily evaluate and fleet manage.”
The Delta and Air Canada deals are proof of this.
When WestJet announced that it is creating a new ultra-low cost carrier, I couldn’t help but wonder if this April Fool’s joke might be the preview of the new subsidiary.