Dec. 28, 2017, © Leeham Co.: Two thousand seventeen had to be a bittersweet year for Bombardier.
Despite landing two good, blue-chip orders in 2016—Air Canada and Delta Air Lines—it hadn’t achieved the “commercial momentum” hoped for. At long last, Letters of Intent for 31+30 and 12+12 orders and options were announced this year for the CS100 and CS300 from an Unidentified European carrier and Egyptair respectively. Officials hope to firm these up by the end of this year.
No additional C Series orders were forthcoming for the rest of 2016 and none for 2017 when Boeing stepped up and puked all over the program.
In April, Boeing filed a trade complaint with the US government. Boeing would prevail with the US Department of Commerce, which preliminarily determined to levy a 300% tariff on each C Series imported into the US.
The US International Trade Commission took up the case Dec. 18; a decision is due next month. If ITC finds there was no harm to Boeing, the DOC decision goes away.
With the trade complaint at the DOC awaiting final determination, Bombardier and Airbus announced the latter was buying 50.01% of the C Series program for US$1. Bombardier continued to assume the risk, up to $700m, and to invest $300m to establish a US final assembly line next to Airbus’ Mobile (AL) plant to service US customers.
Boeing immediately sniffed at the transaction. In testimony before the ITC Dec. 18, and in briefing papers filed with ITC and the DOC, Boeing noted that the deal isn’t final—an argument that ignored the requirement several governments (including the US, which approved) had to give anti-trust clearance before the deal can become final.
Boeing continued to downplay the deal, charging that it is nothing more than a circumvention of the crushing tariff that (at that point) was preliminarily imposed by the DOC.
There’s certainly evidence that the deal was spurred by the trade complaint and tariffs. But at the same time, a case could be made the deal may have transpired anyway. Bombardier hadn’t sold a C Series for more than a year after the Delta order. Deliveries were being delayed by engine supply issues from Pratt & Whitney, which was buried with the well-publicized problems with the Airbus A320neo engines.
Furthermore, Bombardier’s reputation for after-market support remained an issue and trying to break into the Airbus-Boeing duopoly remained daunting.
The deal with Airbus may well have come down to, “if you can’t beat ‘em, join ‘em.”
While BBD gave the program away for $1, officials claimed the long-term benefits to Bombardier by Airbus’ strength in marketing and product support will pay off for shareholders.
Airbus fills a hole at the bottom end of its product line, which Boeing can’t or won’t. Airbus gets access to new technology in the C Series for future airplanes.
Plans to build the FAL in Alabama will proceed regardless of the ruling by ITC, Bombardier says. Delta and BBD agreed that deliveries will only be from Mobile. They want to remove any cloud over future deliveries that Boeing might refile a trade case on imports from Canada, should it lose the ITC case. Having the Mobile plant for US deiveries also removes a cloud for potential US customers, Delta and Bombardier told the ITC.
Finally, the outcome of the claimed benefits of the Airbus-BBD deal will take years before the industry sees the results.
The CRJ and Q400 programs, meantime, continue to struggle. Indications are that Bombardier loses money on every Q400 delivered and the airplane has a low, double-digit market share against the ATR-72.
The CRJ’s future rests entirely on no change to the US Scope Clause, which limits the size of airplanes that can be flown by regional partners of US major carriers.
The outlook for 2018 rests in large part on the ITC ruling due in January for the C Series program.
Officials have a hard decision to make about the future of the Q400 program. Although there was speculation this year that the Chinese were poised to buy the program, at this writing, no such transaction had been announced. Absent a sale, Bombardier needs to decide whether it’s time to terminate the program.
As for the CRJ—the airplane may have a future as long as the Mitsubishi MRJ remains in limbo. The MRJ is already seven years late. There is no assurance there won’t be more delays.