To Kill a Better Bird

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Oct. 12, 2017, © Leeham Co.: Boeing’s brash and controversial move to file the trade complaint with the US Department of Commerce is a bold gamble designed to kill the Bombardier CSeries entirely, not just block it from the US market, people familiar with the strategy tell LNC.

The threat Boeing fears from the CSeries is not really about the 737-700 or 7 MAX, they say, but truly about the future of the 737-800 and 8 MAX.

While Boeing as clear in its filings with the US International Trade Commission (ITC) and Department of Commerce (DOC) about the alleged threats, some insight to Boeing’s thinking explained by people familiar with the situation was provided.

  • Boeing hopes blocking the CSeries out of the US market will have a ricochet effect on Bombardier’s pricing strategy elsewhere.
  • With a higher price, Boeing believes it can successfully compete head-to-head in acquisition campaigns.
  • Boeing’s fear is really about the CS300 dragging down the price against the 7 MAX, which will have a cascading effect on the 8 MAX.

Blocking the CSeries

LNC was told as far back as June, only a few months after the complaint was filed with the ITC, that Boeing felt if it could block the CSeries in the US, which Bombardier views as the largest market for the airplane, that the business model for the program will collapse—and Bombardier will have to terminate the program.

This strategy was repeated to LNC months later from a source with no connection to the first one.

The strategy also rests in part on the assumption that Bombardier will be forced by the US decisions over pricing to boost the sales prices of the CSeries more in line with Boeing’s for the 7 MAX. Even though the 7 MAX proved to be an exceedingly poor seller long before the Delta Air Lines deal at the heart of the complaint, and the revised design continues to have a dearth of orders, Boeing believes the pricing pressure on the 7 MAX in campaigns will be relieved.

This in turn then won’t drag down pricing on the 8 MAX.

Boeing outlined the cascading pricing scenario in the US complaints but then, resorting to the hyperbole that often infects its legal pleadings, asserted Bombardier would kill the 8 MAX and with it, The Boeing Co. and the entire US aerospace industry. It’s these claims that drew the most derision from industry observers.

Higher pricing
With the US market closed to BBD, the scenario continues, and the adverse decisions from the US, Boeing believes Bombardier will have to hike its sales price elsewhere in the world to levels Boeing can profitably and successfully compete.

Faced with wins on a “level playing field,” and new competition on the same field from Airbus (que the irony on this one), Boeing believes BBD won’t garner enough sales and Bombardier will eventually kill the program.

There is a lot to counter with arguments in this scenario, but is what’s been outlined by sources, months apart.

On the other hand

But it seems that Boeing may also be hedging its bets a bit.

While Delta and Bombardier officials publicly doubt the 300% tariffs will stand, Boeing is privately talking about a scenario in which a negotiated settlement is reached that will at least allow Delta to take delivery.

What this would mean for other US airlines that may be interested in the aircraft is unclear.

Delta is engaged in a campaign pitting the Airbus A321neo against the 737-10 (and perhaps the 9 MAX). It’s been widely assumed since the complaint was filed early this year that this kills any chance of Boeing making a sale.

Relations between Boeing and Delta have not been good for years. If there were no other considerations, it may well be true that Delta would snub Boeing.

But consider this: perhaps an order for the MAX might be part of some settlement.

Also: Delta is building a big hub in Seattle, competing against Alaska Airlines, currently an all-Boeing operator (setting aside for the moment the Airbuses operated by sibling Virgin America).

If Delta ordered the A321neo instead of the MAX, could this hurt patronage in Boeing country in Seattle? Might Alaska capitalize on this?

The next few months, well into next year, will be interesting to watch.

1 Comments on “To Kill a Better Bird

  1. In return for Boeing to back off of BBD, Delta please Boeing by ordering 767-300ERs to retire their older 757 and 767 birds. This will hold them over until the 797s come off the assembly line. Of course, they should pledge orders for the 797s or be the launch customer.

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