Canada

AIRBUS RESCUES THE C SERIES

October was an interesting month for Canadian C Series manufacturer Bombardier, when it announced that European company Airbus is set to acquire a 50.01% interest in the C Series Aircraft Limited Partnership (CSALP) with no upfront cash investment. Bombardier will own 31% and Investissement Québec (IQ) approximately 19%. The C Series is a single-aisle aircraft designed for the 100 to 150-seat market segment. The agreement will see Airbus supporting the C Series with sales and marketing support, managing procurement (such as leading negotiations to improve CSALP level supplier agreements), and offering customer support.

The Boards of Directors of Airbus and Bombardier have approved the transaction together with the Government of Québec. Like any transaction of this kind, it is subject to regulatory approvals and conditions with no guarantees that the transaction will be completed and the conditions will be met. The transaction (expected to be finalized in the second half of 2018) is a lifeline for the C Series, which has been plagued with a number of issues such as delays and cost overruns.

Airbus has an extensive global reach and it should come as no surprise that this partnership will stimulate confidence in the C Series. At the Dubai Airshow this month, EgyptAir signed a letter of intent to purchase up to 24 CS300 aircraft – 12 CS300 with purchase rights for an additional 12 aircraft, which if exercised could see a deal valued at US$2.2 billion. According to various media sources, earlier this month Bombardier stated that an unidentified European customer planned to purchase 31 C Series aircraft with options for an additional 30. With Bombardier failing to close on a major deal since Delta Airlines C Series order in April 2016, these two new potential deals foretell a positive turnaround.

The C Series has had a rough ride in the U.S. due to Boeing’s trade complaint, which has resulted in a 300 per cent import duty tariff. Bombardier’s decision to hand over control of the C Series to Airbus is a smart move and a financial respite. Québec’s Deputy Prime Minister, Minister of Economy, Science and Innovation and Minister responsible for the Digital Strategy, Dominique Anglade, stated that the arrival of Airbus as a strategic partner would ensure the sustainability and growth of the C Series programme.

Those in the aviation industry and analysts alike are watching closely as to what move competitor Boeing will make. Boeing’s, (the largest aerospace company in the world), attempt to block the C Series from the U.S. market may have been a misstep. The tables could turn with the Airbus deal ultimately damaging Boeing in the long run especially if the C Series is assembled within U.S. borders in Alabama. Analysts predict that the deal could prompt Boeing to form a stronger alliance with Brazilian aerospace company Embraer.

 

Written by Sylvia Caravotas (Satovarac Consulting) for OIDA

THE GLOVES ARE OFF – BOMBARDIER VERSUS BOEING

Boeing’s dispute with rival Bombardier over the Canadian company’s government subsidy enabling it to sell its C Series passenger aircraft in the U.S. at below market prices is placing Canada’s order (estimated to be worth around $2 billion) of 18 Boeing F/A-18 Super Hornet fighter jets in jeopardy. A precursor to the dispute is Bombardier’s Delta Air Lines deal (estimated at $5.6 billion) for 75 C Series aircraft, with aggressive pricing strategies and discounts to seal the deal.

Boeing petitioned the U.S. Department of Commerce and the U.S. International Trade Commission to investigate the matter, which was met with opposition from the Canadian government adding tension to trade relations. A preliminary determination is expected by June 12. Canadian Foreign Affairs Minister, Chrystia Freeland, stated that Boeing’s petition is “clearly aimed at blocking Bombardier’s new aircraft, the C Series aircraft, from entering the US market.” Freeland added that Ottawa is now “reviewing current military procurement that relates to Boeing”.

The C Series is the first product from Bombardier to compete against the likes of Boeing and Airbus. Bombardier’s commercial aircraft division has had a tough time recovering funds invested in developing the aircraft. However, in 2016 Bombardier closed the $1 billion investment by the Government of Québec (through Investissement Québec) in return for a 49.5% equity stake in the recently created limited partnership – the C Series Aircraft Limited Partnership (CSALP). Further, according to the Financial Times, the Commercial Aircraft Corporation of China (COMAC) held discussions to either buy a stake in Bombardier’s commercial aircraft division or the C Series programme.

  • On June 29, 2016, Bombardier delivered its first CS100 aircraft to Swiss International Air Lines (SWISS), with commercial service commencing on July 15, 2016.
  • On November 28, 2016, the first CS300 aircraft was delivered to Air Baltic Corporation AS (airBaltic), with commercial service commencing on December 14, 2016.
  • A total of 129 firm orders and 80 options were added to the backlog from Delta Air Lines, Air Canada, airBaltic, and Air Tanzania (a combined value of $10.1 billion at list prices).

With the Delta Air Lines order, Bombardier has not only found a conduit to the U.S. market, but also landed a huge deal, making the aircraft far more desirable to prospective buyers. Boeing will have to compensate for lost fighter jet sales if Canada drops the deal in retaliation to their claim, but one thing is certain, whatever the outcome Bombardier has launched into the lucrative U.S. market with the Delta Air Lines deal and unsettled industry rivals who will continue to compete for future sales.

 

Written by Sylvia Caravotas (Satovarac Consulting) for OIDA

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