Category Archives: Bombardier Aerospace
TOULOUSE, France (Reuters) – Two years ago, Airbus Chief Executive Tom Enders halted negotiations to buy Canada’s CSeries program at midnight after the talks with Bombardier leaked to Reuters. On Tuesday, he performed a U-turn by backing a similar deal after all – again at dead of night. The nocturnal gymnastics by Europe’s largest aerospace group stunned the aircraft industry which had been riveted for weeks by a trade dispute between Boeing and Bombardier that threatened to hit the CSeries with large U.S. import fees. Now, the 110-130-seat jet will be built for U.S. airlines at Airbus’s Alabama assembly plant, circumventing any import penalties in a move that apparently caught Boeing off guard. Analysts say that potentially turns the CSeries from an attack on U.S. jobs, as portrayed in Boeing’s complaint, to a job creator in a key Republican state, though Boeing termed the move a “questionable deal” between two of its subsidized competitors.|
The deal also signals the end of Airbus efforts to promote the A319, its smallest jet which has not posted a sale in years. “The stunning Airbus-Bombardier partnership for the CSeries program guarantees the future of the new airplane, kills off the A319 and thrusts a big stick up Boeing’s tailpipe,” Leeham Co analyst Scott Hamilton wrote.
Strategically, however, the move extends well beyond the noise of Boeing’s spat with Bombardier and could trigger a riposte from other planemakers, including Boeing itself.
Commercial aerospace has four main powers dominated by Airbus and Boeing, which share the market above 150 seats. Brazil’s Embraer and Canada’s Bombardier compete between 100 and 150 seats as well as in the market for smaller regional jets. But China and Russia lead a field of new entrants vying to break into the $125 billion a year commercial market, along with smaller regional players such as Japan.
Tuesday’s deal starts to rearrange the deck in a move that many have been expecting since former Airbus head Louis Gallois warned six years ago that the market was getting too crowded. In particular, it could drive Boeing closer to Embraer, with which it already cooperates. Embraer’s E2 jet is one of the main potential losers from the CSeries deal. “The world has two top-tier airframers, and two second-tier airframers,” said Teal Group analyst Richard Aboulafia. “Airbus and Bombardier are now allies. This greatly increases the likelihood of a stronger Boeing-Embraer alliance as a response.” Such a move has long been contemplated in private.
The CSeries benefits from a new type of efficient engine. Its launch in 2008 eventually prompted Airbus to put the same generation of engine on its own A320 to protect its main profit source. That in turn forced Boeing to dump plans for an all-new single-aisle plane in 2011 and opt for a makeover of its best-selling 737 with similar engines, to be known as 737 MAX.
But sitting in Boeing’s filing cabinets are designs for an all-new jet that would have involved intense collaboration with Embraer, according to two people familiar with the project. A template for closer co-operation therefore already exists. Boeing and Embraer declined to comment. The two companies already work on projects including runway safety and alternative jet fuels. Their partnership has intensified in recent years to include Boeing’s commitment to joint sales and support of Embraer’s KC-390 military aircraft.
The Airbus-Bombardier deal also marks a pause in strategic advances made by China, widely seen as the most serious future competitor to Airbus and Boeing. Debt-laden Bombardier had been in talks with China as it waited for Airbus to come around to the CSeries. “China has missed out on a huge opportunity to advance its aims by not getting the CSeries,” an industry strategist said.
The deal also has potentially far-reaching consequences for product strategy and technology at Airbus and Boeing.
A person close to Bombardier said Airbus would aim to pressure the key Boeing 737 MAX 8 model by squeezing it from below with the CSeries and from above with the popular A321neo. Some critics say it could also develop a larger CSeries. But critics say airlines don’t want such a patchwork of products. The deal clashes with one of the core philosophies in the Airbus brochure to date – a compatible family of aircraft where pilots and maintenance staff can be redeployed easily.
Airbus will also get its hands on promising technology. Workers in Belfast, whose jobs have been at the center of a political storm over the Boeing-Bombardier dispute, are using innovative wing production techniques that may now be deployed by Airbus for future jets.
That could increase tensions at the World Trade Organisation where Boeing has battled with Airbus for years over government loans. Bombardier received such UK funding in Belfast, meaning recent trade friction may shift to the larger stage at the WTO.
Bombardier is looking to dispose of some aerospace assets, including Toronto-built Q400, say insiders.
Bombardier Inc. is seeking investors for its aerospace businesses and considering a sale of some Toronto-based operations, people familiar with the matter said, as a turnaround plan at the Canadian planemaker faces pressure from potentially crippling U.S. tariffs on its marquee jetliner.
The Montreal-based manufacturer is studying the disposal of assets including its Q400 turboprop, which is made at its Downsview plant, and CRJ regional-jet unit, said the people, who asked not to be identified because the discussions are private. Airbus SE is among the suitors, they said, with one person saying Bombardier is also open to partnerships with other aerospace companies. The company’s Toronto operations currently employ about 3,500 people, with about 1,400 working on the Q400.
Chief executive officer Alain Bellemare is trying to stop a cash drain after its C Series jetliner came to market more than two years behind schedule and about $2 billion over budget.
Asset sales or investment deals in aerospace would raise money as Bombardier contends with newly imposed U.S. import duties of 300 per cent on the plane. Bombardier also missed out on a merger of its rail-equipment business with Siemens AG’s operation after months of talks. Deals on the Q400 or CRJ may add life to languishing products. In sales terms, the entire segment of regional aircraft, which seat between 50 and 90 people, garnered only 119 orders last year, down 50 per cent. “Bombardier has neglected these products for so long,” said Richard Aboulafia, an aerospace consultant at Teal Group. “These should be worth more and should be more desirable,” he said, adding that the Q400 may have an easier time finding a buyer than the CRJ line.
The turboprop and regional jet markets are largely duopolies, partly controlled by Bombardier. The Q400 competes with planes made by ATR, which is owned by Airbus and Leonardo SpA, while the CRJ jets go head to head with aircraft built by Brazil’s Embraer SA.
Bombardier is looking to break into the bigger jet market with the C Series, but delays and cost overruns prompted the company to accept a $1 billion investment from Quebec, plus another $372.5 million from Canada. The company’s Global 7000 business jet has also been delayed. Part of that jet was also to have built at Downsview.
Quebec’s Economy Minister Dominique Anglade said Monday that the province is ruling out any further aid for Bombardier, according to The Canadian Press. Anglade said Monday she welcomes news that other players might be interested in investing in the company. But Anglade, who is also now deputy premier, says the government will not get involved in Bombardier’s Q400 turboprop or CRJ regional jet programs.
Federal Economic Development Minister Navdeep Bains told reporters at the same event on Monday that Ottawa has shown a long-standing commitment to the aerospace sector. Bombardier and Airbus, whose earlier talks on a potential business collaboration fizzled in 2015, declined to comment. No final decisions have been made and Bombardier deliberations with potential partners may not lead to any transactions, the people said.
The U.S. Commerce Department recently imposed 300 per cent tariffs against the C Series, saying Bombardier sold the narrow-body plane at less than its fair-market value after receiving government subsidies in Canada. The agency’s decision followed a complaint by Boeing Co. after Bombardier sold at least 75 of its planes to Delta Air Lines Inc., a deal valued at more than $5 billion based on list prices.
Bombardier’s shares closed at $2.32 on Oct. 13 and have risen 6.9 per cent this year. The company got about 57 per cent of its revenue from aircraft and aerospace parts last year.
The rail business has also raised funds in recent years. In 2015, Bombardier sold a stake in the unit to Caisse de Depot et Placement du Quebec, Canada’s second-largest pension fund manager, for $1.5 billion. Last month, Siemens chose France’s Alstom SA as its merger partner in rail equipment, leaving Bombardier on its own to face the new European giant and Asian heavy hitters such as China-based CRRC Corp. and Hitachi Ltd. of Japan.
Bellemare has long talked about the need for Bombardier to improve margins of the Q400, which has lost market share in recent years to lighter, cheaper turboprops made by ATR. Bombardier is looking to move production of wings and cockpits for the Q400 outside of Canada to reduce costs, vice-president Todd Young said last month at a press briefing in Mirabel, Quebec.
Colin Bole, a senior vice-president of sales at Bombardier’s commercial aircraft unit, said at the same press briefing that the company has “a tremendous number of Q400 campaigns in the pipeline globally and we certainly intend to crystallize those in the next few months.” “I think you will see a dramatic change in the backlog,” Bole said.
Boeing is drawing the ire of Britain’s Labour Party, which accuses it of playing dirty in a trade spat with Canadian competitor Bombardier. (Jason Redmond / AFP/Getty Images)
Boeing is the “king of corporate welfare,” Britain’s main opposition Labour Party said, accusing the U.S. aerospace giant of “egregious hypocrisy” in pursuing an illegal-subsidies claim against Bombardier that threatens thousands of jobs in Northern Ireland.
The U.S. slapped 300 percent of duties on Bombardier’s C Series aircraft after upholding Boeing’s contention that the Canadian company benefited from state support, allowing it to sell the model more cheaply. Labour’s trade spokesman Barry Gardiner said Wednesday that “no aircraft these days comes to market without support from government,” including those produced by Boeing.
“Boeing has absolutely been sucking at the milk of corporate welfare in America for far too long,” Gardiner said on Bloomberg TV. “They need to understand that the way in which they are playing this does not sit well with U.K. parliamentarians.”
The dispute has caused a headache for Prime Minister Theresa May, who wants to strike a trade deal with the U.S. as Britain leaves the European Union. At the same time, she needs to protect more than 4,000 Bombardier jobs in Northern Ireland, where she depends on the support of 10 lawmakers from the Democratic Unionist Party to get legislation through Parliament.
Gardiner didn’t mince his words on Boeing, suggesting that the company is itself a “subsidy junkie” and accusing it of bringing the Bombardier case to “crush a competitor” and get hold of “superior technology” — including wings that are made in Belfast — by driving down its share price “so that they can try and do a hostile takeover.”
A spokesman for Boeing in the U.K. said the U.S. action is about conforming with trade law and that “Boeing complies.” He declined to comment on whether the company was trying to hurt Montreal-based Bombardier’s share price in preparation for a takeover attempt.
Gardiner also said he plans to ask European authorities to investigate whether there is an anti-dumping case to be made against Boeing over its contract to sell 30 of the latest 737 Max 8 jetliners to Monarch Airlines Ltd., which filed for insolvency earlier this month.
The $3.1 billion order, originally placed in 2014, was last year restructured as a sale and leaseback, in which planes are typically purchased from a carrier and then rented back. The nature of the deal, which paved the way for Monarch owner Greybull Capital LLP to make a 165 million-pound ($220 million) capital injection, suggests Boeing sold the 737s “at less than cost price into the European market,” Gardiner said.
Boeing said it doesn’t publicly comment on the financial arrangements of its customers.
The defense and aerospace giant is under pressure in the U.K. after May, Defence Secretary Michael Fallon and Business Secretary Greg Clark all said it is putting at risk chances of winning future contracts from Britain.
The Chicago-based company on Tuesday took out a wraparound ad in London’s Evening Standard newspaper featuring a picture of a Chinook helicopter hovering over Stonehenge, and has also erected a giant billboard in Westminster subway station, which many lawmakers pass through on their way into the Houses of Parliament.
“We are absolutely coming at Boeing,” Gardiner said. “All the advertisements, all the front covers of the evening newspapers in London that they’ve put on are not persuading anybody other than that they’re playing dirty.”
Delta Air Lines CEO Ed Bastian said the Atlanta-based airline will not pay tariffs on the Bombardier CSeries and acknowledged the brewing trade dispute between the US and Canada over the aircraft may delay its delivery to Delta.
Delta has 75 CS100s on firm order and is scheduled to take delivery of its first in the spring of 2018. Delta’s order, which also includes options for 50 more CSeries aircraft, led Boeing to file a complaint with the US Commerce Department, alleging financial help from the Canadian federal and Quebec provincial governments on the CSeries program enabled Bombardier to sell the aircraft to Delta at an “absurdly low” price. Initial rulings issued by the Commerce Department in late September and early October called for Delta to pay as much as 300% in duties on each CSeries aircraft it receives.
Those duties would be put in place if a parallel investigation by the US International Trade Commission (ITC) finds that CSeries subsidies and price-dumping have caused material damage to Boeing. The ITC ruling is expected in the first quarter of next year, just ahead of planned first deliveries to Delta.
During an Oct. 11 conference call with analysts and reporters, Bastian was emphatic: “We will not pay those tariffs.” He said Delta does still “intend to take the aircraft,” although he acknowledged “there may be a delay as this debate gets brought to a head over the next 12 months … We believe Delta will get [the CS100s] at the agreed contractual price.
Bastian said it is still “early” in the process by which the CSeries duty issue will be resolved, noting the Commerce decision has “triggered a lot of discussions at the political level beyond aerospace.” Bastian said the Commerce decision “is not just disappointing—it doesn’t make sense.”
He added that ITC will have a hard time detailing material damage to Boeing from the Delta CSeries order.
“In our opinion, it is very difficult for Boeing to claim harm,” he said, noting that Boeing “did not offer and they do not have” an aircraft in the size range of the CS100, which Delta plans to configure with 110 seats. Boeing’s position is “a bit nonsensical,” Bastian said.
He added Delta is in talks with Bombardier about “various other plans or alternatives we’re contemplating” if the duty is imposed, declining to elaborate.
“We strongly disagree with the Commerce Department’s preliminary decision. It represents an egregious overreach and misapplication of the U.S. trade laws in an apparent attempt to block the C Series aircraft from entering the U.S. market, irrespective of the negative impacts to the U.S. aerospace industry, U.S. jobs, U.S. airlines, and the U.S. flying public.
The Commerce Department’s approach throughout this investigation has completely ignored aerospace industry realities. Boeing’s own program cost accounting practices – selling aircraft below production costs for years after launching a program – would fail under Commerce’s approach. This hypocrisy is appalling, and it should be deeply troubling to any importer of large, complex, and highly engineered products.
Commercial aircraft programs require billions in initial investment and years to provide a return on that investment. By limiting its antidumping investigation to a short 12-month period at the very beginning of the C Series program, Commerce has taken a path that inevitably would result in a deeply distorted finding.
We remain confident that, at the end of the processes, the U.S. International Trade Commission will reach the right conclusion, which is that the C Series benefits the U.S. aerospace industry and Boeing suffered no injury. There is wide consensus within the industry on this matter, and a growing chorus of voices, including airlines, consumer groups, trade experts, and many others that have come forward to express grave concerns with Boeing’s attempt to force U.S. airlines to buy less efficient planes with configurations they do not want and economics that do not deliver value.
The U.S. government should reject Boeing’s attempt to tilt the playing field unfairly in its favor and to impose an indirect tax on the flying public through unjustified import tariffs.
Commerce’s statement that Bombardier is not cooperating with the investigation is a disingenuous attempt to distract from the agency’s misguided focus on hypothetical production costs and sales prices for aircraft that will be imported into the United States far in the future.
As we have explained repeatedly to the Department, Bombardier cannot provide the production costs for the Delta aircraft for a very simple reason; they have not yet been produced. Commerce’s attempt to create future costs and sales prices by looking at aircraft not imported into the United States is inappropriate and inconsistent with the agency’s past practices. This departure from past precedent and disregard of well-known industry practices is an apparent attempt to deprive U.S. airlines from enjoying the benefits of the C Series, even though Boeing abandoned the segment of the market served by the C Series more than a decade ago.
This action also puts thousands of high-technology U.S. jobs at risk given the C Series’ significant U.S. content. More than half of each aircraft’s content, including its engines and major systems, is sourced from U.S. suppliers. Going forward, the C Series program will generate more than $30 billion in business for U.S. suppliers and support more than 22,700 jobs in the United States.”