Aug. 15, 2022, © Leeham News: Airbus now has nearly 800 orders for the A220, but the program is years from profitability and production faces supplier challenges like those facing the Airbus A320neo and Boeing 737 MAX.
Passenger experience easily exceeds the older design A320 and 737. The A220’s 2×3 seating, 18.5 inch window/aisle seats, 19-inch wide middle seat and wide aisle draw kudos. The windows are larger than the older airplanes. Economics are better than promised by Bombardier, which designed the airplane as the C Series.
Development costs, neglect of the Bombardier Q400 and CRJ programs and concurrent development of two new corporate jets nearly bankrupted Bombardier. To save itself, Bombardier exited commercial aviation and killed one of the two corporate jet developments. The Q400 program was sold to Longview Aviation, which rebranded the turboprop its original name, the Dash 8-400, and adopted the legacy company name, De Havilland Canada.
The CRJ program was sold to Mitsubishi Heavy Industries. MHI had little interest in the CRJ regional jet. Interest was in acquiring the CRJ global product support and MRO system as a groundwork for the M100 SpaceJet it was developing. (MHI later changed CEOs in its policy of rotating the leadership. The new leaders killed the SpaceJet program, the reason for buying the CRJ in the first place.) MHI last year seriously considered restarting production of the CRJ. This idea was abandoned only last month.
The C Series was sold to Airbus in 2017, the first of Bombardier’s commercial programs to go. The impetus was a complaint filed by Boeing with the US Department of Commerce in 2017. While Commerce was assessing the complaint, Bombardier agreed to sell 50.1% of the program to Airbus. BBD was committed to fund construction of an assembly plant at Airbus’ Mobile (AL) complex and cover up to $700m in losses. (Commerce eventually upheld Boeing’s complaint and levied a 292% tariff. But the required review by the Court of International Trade found Boeing suffered no harm in a deal with Delta Air Lines that triggered the complaint. The CIT’s finding killed the tariff.)
Bombardier was unable to fulfill its commitments to Airbus, which eventually bought out Bombardier’s remaining share of the program. (A Quebec, Canada, pension fund still retains about 25% ownership of the program.)
Airbus recognized that Bombardier’s cost to produce the C Series was a challenge. LNA in 2016 estimated Bombardier’s cost, including General and Administration (G&A) and other overhead, was about $33m. Airbus at the time concluded the cost of only the airplane was about $24m.
In its complaint alleging Bombardier price dumping with the Delta deal, Boeing calculated that before credits, the price to Delta was $24m and $19.6 after credits. Bombardier, which took a $500m “onerous contract charge” for the Delta and Air Canada sales, claimed the Boeing figure was millions of dollars too low. (Remember, G&A and other overhead costs are not included in the $24m cost.)
Market intelligence indicates that Airbus is having difficulty cutting costs. Raytheon Technologies units Pratt & Whitney and Collins Aerospace are said to be especially difficult. So, other intelligence indicates, Airbus is raising the sales price of the A220 to around $40m. This figure boosts the Direct Operating Costs to challenging levels for some operators.
Headlines and stories about delays encountered by Airbus and Boeing focus on the A320neo, 737 MAX and widebody lines. Supply chain problems also affect the A220. Recent deliveries were around six weeks late. Traveled work, due to missing supplier parts, are partly to blame.
Quality control issues are cited by at least one customer taking A220s from the new Mobile (AL) assembly plant, which opened in 2020. The Final Assembly Line is still young in the complex aerospace learning curve process. The first A220 in Mobile was assembled on a line shared with the A320/321neo line.
Airbus publicly stated that it needs to get the production rate up to 14/mo between the Montreal and Mobile plants as part of the efficiency and cost-cutting drive to reach profitability. How the $40m sales price may accelerate break even has not been calculated outside Airbus. However, when Bombardier still owned the C Series, an insider said it would take 1,200 sales to break even, given the $2bn in cost overruns at the time. A normal airplane program (of which there have been few in recent years) targets 400 sales for break even.
Bombardier designed a CS500 when it developed the C Series. The CS500 would be a direct competitor to the A320neo and 737-8. Under the Airbus brand, the airplane is known as the A220-500. Officials have been clear this model won’t be launched until after 2025, when profitability is achieved.