Feb. 24, 2020, © Leeham News: I bet you’d never get an official of the European Union to go on the record.
But there sure seems to be plenty of anecdotal evidence that the approval of the proposed Boeing-Embraer joint venture is being held hostage.
The EU is plenty vocal about being pissed at the Trump Administration’s trade war against Europe. It’s also unhappy with Trump’s tariffs on Airbus jets imported into the US.
Trump initially levied a 10% tax on the planes, last October. Next month, this goes up to 15%.
As of last week, the US collected more than $277m in tariffs related to the Airbus complaint. The Trump Administration has WTO authority to levy 100% taxes, up to $7.5bn. Industries and countries that have nothing to do with aerospace are penalized in addition to Airbus.
It’s unclear from public information how much of the money collected so far is from Airbus imports.
Neither Airbus nor its US-based customers has confirmed who pays. However, in November during an investor’s tour in Asia, Airbus said it probably would split the fee for aircraft already in production. But customers would be responsible for future taxes.
Now, as of last week, Boeing and the Washington State Legislature appear on a path to end the billions of dollars in tax breaks the WTO said were illegal. The EU and Airbus are waiting for the WTO to authorize tariffs. Boeing claims ending the breaks removes the need for tariffs. If the WTO agrees, the EU has no leverage to hold over Trump to drop tariffs on Airbus. Except for the JV.
The JV officially was announced in February 2019. Nine of 10 governmental approved the JV. This includes Japan, where Mitsubishi Heavy Industries is developing the M90 and M100 SpaceJet in competition with Embraer.
Only the EU has not granted approval. The EU asked for a couple of million pages of documents dating 20 years. It’s twice suspended progress awaiting information.
Other governments requested up to 250,000 pages of documents.
Embraer said only one manufacturer and one supplier objected to the deal before the EU. Neither was identified, but Mitsubishi is believed to be the OEM.
John Slattery, the CEO of Embraer Commercial Aviation, is now on a mission to gin up support in the industry to pressure the EU into approving the JV. Slattery is CEO-designate for the JV once it’s completed.
Sales of the E-Jet E2 have been slow while the industry waits to see if the JV goes forward, he says. People want to see Boeing’s muscle and deal-making behind the E2.
Slattery says an independent Embraer can’t compete with the heft Airbus puts behind the C Series, now called the A220. He can point to at least one deal. Bombardier and Embraer faced off at jetBlue for an order to replace the airline’s aging E190s. JetBlue was the launch operator of the airplane. With its incumbency, Embraer believed it was ahead in the competition.
But within days of Airbus taking over the C Series, it threw in a sweetener in the form of A321neos. JetBlue placed the order for the A220.
It’s unclear what other face-offs have been won by Airbus. Air France chose the A220. But KLM, the other half of the Air France-KLM Group, ordered the E2.
Breeze Airways chose the A220-300. This was another Bombardier deal in the works, wrapped up by Airbus days after its takeover. Breeze’s founder, serial entrepreneur David Neeleman, previously chose the E195-E2 for his other airline, Azul. The A220-300 has longer range and a larger, more flexible cabin than the E195-E2 and is better suited for the Breeze business model.
If Embraer can’t compete with Airbus, can an independent Mitsubishi compete with Boeing-Embraer?
Years ago, Boeing agreed to support Mitsubishi with the development, sales and service of the MRJ program. With Boeing Brasil-Commercial on the horizon, the obvious question arises: will Boeing continue support for the MRJ90, now called the M90 SpaceJet, and the future models?
Boeing’s Ihssane Mounir, vice president of Commercial Sales & Marketing, says yes.
“If you look at last year, we had disclosed a couple of off-platform services deals where we won the right to manage components on Airbus products with a couple of airlines,” he said at the Singapore Air Show. “They’ve given us component management of their Airbus fleet. We do the same thing on training. Our facilities have both Boeing and Airbus simulators. I’ll let you answer the question of how Mitsubishi would feel about that. There is a level of professionalism that the industry adheres, and this will be no different.”
However, after-sales support is much different than the deals offered during a sales campaign. Boeing packages services with sales offers in campaigns. One has to believe the Boeing E2 will get preferential package pricing vs an independent SpaceJet.
This begs the question whether Mitsubishi, with its decades-long relationship with Boeing, should turn to Airbus for support.