Last week’s announcement that Airbus would bring Bombardier’s C-Series program under its proverbial (and, I suppose, literal) wing was a stunner. When at Boeing’s urging the US Department of Commerce announced a 300 percent countervailing duty (CVD) on any C-Series aircraft sold in the US, it was a major blow to the program. Bombardier was already struggling, and at the time, I feared we might not see the C-Series ever fly for a US airline. I suppose I underestimated Airbus’s willingness to step in and knife Boeing in the back. I’m not sure why I ever doubted that. This deal is good for everyone except Boeing. (But even Boeing has a little silver lining here.)
The C-Series is, without question, a great airplane for a piece of the market that’s under-served today: the 100- to 150-seat market. The closest thing Boeing has is the 737 MAX 7, an airplane that seats closer to 150 and has almost no demand. Airbus has the A319neo but that too has seen virtually no orders. Since Boeing and Airbus had given up on this part of the market, it created opportunities for others to take a swing at it. Bombardier’s effort was by far the best in terms of economics and passenger comfort, but it wasn’t an easy road. On the ropes, it resorted to taking a ton of money in exchange for equity from the Quebec government. Boeing smelled blood in the water.
Boeing didn’t care that it had no viable airplane to offer in this size category. It feared Bombardier might some day grow the airplane and compete with the 737-800. To prevent that, Boeing resorted to a full political campaign to stop Bombardier in its tracks. That’s where the monstrous CVD came into play. Even Boeing didn’t expect something that enormous to be slapped on the airplane, but Boeing’s goals aligned with that of the Trump Administration. Boeing could weave the narrative that this was foreign money selling airplanes to US airlines, and that meant US jobs were at risk. The feds could slap this tariff on and show that they were being tough on trade so they could protect US jobs. It may feel (really) dirty, but I have to give it to Boeing for playing its cards right.
But what Boeing didn’t stop to consider is that by fighting the relatively weak Bombardier, it just opened the door for a savior to swoop in. And the only savior that could really matter was Airbus.
The C-Series is actually not built by Bombardier. It’s built by the C Series Aircraft Limited Partnership (CSALP). Bombardier owns 62 percent while Investissement Québec (IQ) owns the remaining 38 percent thanks to that cash infusion I talked about. That structure makes it very easy to let another investor come in. Airbus will now be handed 50.01 percent of the partnership. Bombardier’s stake will drop to about 31 percent with IQ owning the remaining 19 percent-ish. Airbus has the option to buy the rest of the partnership at fair market value in the future as well.
Why would Bombardier just give half the program away? Well, it was in trouble. And now, there is some serious muscle behind the program that didn’t exist before. There are a handful of orders that may be firmed up simply by having Airbus in charge. It can also make the airplane more attractive for interested airlines knowing that Airbus is backing it and not trying to kill it. Most importantly, this gives the C-Series a way into the US market without tariffs, in theory.
How? Airbus says it will open up a second final C-Series assembly line in Mobile, Alabama where it builds A320 family aircraft today. With final assembly of the aircraft in the US, that should mean the CVDs disappear. It’s no longer an import. That is quite the novel and creative solution. I’m tipping my hat a lot today.
I’ve spoken with some who think that this may not guarantee the CVDs disappear. There is the chance that Boeing could go after the parts that are being imported to build the final aircraft and say a CVD should be slapped on them. As one long-time trade expert I know who works outside the industry said to me, “If Boeing goes after parts, it would be the most petty thing I think I have ever seen.” But hey, “Boeing” and “petty” go hand in hand.
That kind of move would seemingly put Boeing into a bad place since, for example, the 787 is full of parts built outside the US. This could backfire on Boeing if it tries to keep pushing here. I’d be surprised if at least some of the parts it buys weren’t subsidized in one way or another by foreign governments. Does Boeing really want to open that can of worms? It depends on how cocky the company gets, I suppose.
The problem is, Boeing is likely to have trouble getting the backing of the US government. The optics are much better for the feds to say “we stood up to this foreign bully and made it play fair. Now we’ve created a ton of jobs to build airplanes right here in the good ole’ U S of A.” Regardless of accuracy, it fits the desired narrative quite nicely. Are the feds really going to stand up there and prevent jobs from being created in the US to do the final assembly for this airplane? That would not be the politically wise move.
So now, Boeing has absolutely nothing to sell in the sub-150-seat market while Airbus has a rock star. Sure the A319 is dead after this deal, but it was pretty much dead anyway. This does, however, make a CS500 or something larger unlikely since that would begin to compete with the A320neo. That is the silver lining for Boeing, if there is one. On the other hand, with this greater range in the portfolio, Airbus is better positioned to win orders from companies that need a smaller and larger airplanes. It can package them together in an attractive way.
Boeing is mad. And it should be, but it needs to turn the anger inward. In the narrowbody market, Boeing is playing a dangerous game. It continues to rely on upgrades to an airplane, the 737, that was designed 50 years ago. And instead of investing in new aircraft that will allow it to expand and compete in new markets, Boeing would rather spend its money paying lobbyists to fight for protectionism. It has most certainly lost this battle, and it must be a tough pill to swallow. (I won’t cry for the company.) But the war? I never count Boeing and its resources out.