By Bjorn Fehrm
February 13, 2020, © Leeham News in Toulouse: The news this morning that Airbus is now the sole owner of the A220 (75%) together with the Government of Quebec (25%) is good news for the A220 and for Quebec.
Bombardier is a company in trouble and it was forced to try and save cash in the A220 partnership rather than invest in the future. This potential limitation on the A220 program is now resolved. Airbus gets sole responsibility for future plans and it has in the Government of Quebec a partner that will be positive to the growth of the A220 as it means more business for the Quebec aeronautical industry.
The A220 joint venture was set up with Airbus as the majority owner with 50.01% and Bombardier as a minority partner with 30.9%, the Government of Quebec, which invested $1bn in the program in 2016, held a 19% share.
The Bombardier commitment also contained a program loss coverage of a maximum of $610m until 2021. This loss coverage, though capped, was problematic for cash-strapped Bombardier. Bombardier needs cash to pay off its large debts (to a large extent caused by A220 development costs) rather than spending more money on an A220 that needed investment at its cash-eating production ramp phase.
Airbus today said the A220 will be profitable when the production reaches 150 aircraft per year which, is expected around 2025. Given the burden of the learning curve of a commercial aircraft program, the total cost of launching a new airliner into the market is approximately double the development cost of about $6bn in the case of the A220.
Airbus is a company with a strong balance sheet and Bombardier the reverse, it has a weak balance sheet. This is no good situation in a JV where Airbus’ sales team and its customers realize the potential of the A220 and are prepared to invest to reap the benefits of the program. Latest today a new MOU for 50 A220 to the African carrier, Green Africa, was announced at the Singapore Air show.
Airbus CEO Guillaume Faury said in today’s 2019 year results press conference, “The A220 program is one we want to invest in, it’s a program we believe in.” This underlines the Airbus attitude towards the A220.
With the transfer of the A220 program to Airbus, the program got a parent with the stature and sales force to exploit the potential of the aircraft. Having Bombardier leave the program, which naturally had different objectives/priorities was in the end, a positive.
The Government of Quebec increases its share in the program from 19% to 25%. This happens without further investment. For the Quebec Government to be a supporter of the program and having transparency on business decisions and investments in the Quebec aero industry is positive.
Airbus will also absorb the remaining Bombardier production parts for the A220. Bombardier sold its wing making North Ireland plant to Spirit Aerosystems last year, but is still making the forward fuselage including the cockpit and the aft fuselage at its St Laurent plant in downtown Montreal.
Airbus will now take over this production and organize it in the Airbus structure subsidiary Stelia Aerospace. The production will initially remain in St Laurent but eventually move to the area of the A220 FAL in Mirabel, north-west of Montreal, to there form an integrated production site for the A220.
The winners and losers of this situation are clear. Bombardier took the risk of entering a new plane in the 100 to 150 seat market, with the potential to extend this to 170 seats and then handed the result to Airbus just when it became clear the program had real potential.
The big winners in the CSeries/A220 drama are Airbus and the state of Quebec. The $591m Airbus has agreed to pay for the remaining shares (it paid $1 for the initial 50%) does little to cover the estimated $8bn to $9bn losses of the program to date for Bombardier. Quebec could save all the jobs and will likely grow its aeronautical cluster further.
The stakes are high in the civil airliner business. Don’t enter it unless you have the depth of pocket to see your program through to profitability.