Airbus and Bombardier Trump Boeing

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.

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35 Responses to Airbus and Bombardier Trump Boeing

  1. Kilroy says:

    Exactly this. Love him or hate him, this is a great paraphrasing of what Trump will likely (or has already?) tweet/say. The move also brings Southern politicians (not as powerful as traditional IL/WA politicians that are presumably in Boeing’s pocket, but still) and traditional “free market” (and less than free market) conservatives to the table and gives them a viable alternative to push.

    > 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.

    • stogieguy7 says:

      Absolutely correct, the entire scenario ended up being a massive PR win for the Trump administration. In fact, the way that things shook out were like manna from heaven. Had Boeing just played fair and kept out of it, the fine CS series would have continued to struggle under Bombardier’s stewardship. But in a perverse turn of events, Boeing has now guaranteed the success of the program and – because some of the aircraft will be assembled in the US – now it will be championed by politicians as well. Talk about a backfire!!

      Makes me want to giggle.

  2. Jason says:

    Maybe this will push Boeing’s board to finally approve moving forward on the NSA.

  3. Tim Dunn says:

    I agree with everything you say except that the chances of the CS500 go down. I believe it is just the opposite. The CS500 if launched would be heads and tails more efficient than the 737-8MAX or A320NEO and Boeing knows that. It isn’t fighting the C Series for the lost sales of the 737-7MAX. It is fighting the C Series because the CS500 would be far more efficient than the heart of Airbus and Boeing’s narrowbody models. Airbus gets a far more efficient aircraft in the C Series than the A320NEO plus can provide the relatively little engineering money that might be necessary to strengthen the wing, landing gear or whatever is necessary to grow the C Series. Airbus and Boeing are in a duopoly with the A320/B737 families with Airbus getting more of the segment due to better A321 sales. With a more efficient 150 seater in the CS500 plus the CS100 and 300, Airbus whacks Boeing at the bottom and at the top and then can shift its attention to the middle of the market aircraft where neither Boeing or Airbus has solid plans.

    Boeing needs to spend money on aircraft development again. They have built some great models. Perhaps the best news out of all of this is that Boeing is reportedly expanding/restarting production
    of the passenger 767-300ER, perhaps with upgrades that might include new generation engines. The 767 is Boeing’s best weapon in the size class and it is far more competitive than the 787-8 from a cost standpoint or the 330 which is much heavier.

    Unfortunately, the 757 is history but perhaps Boeing can resurrect the 767 to bridge it to an all new narrowbody and then discount the 737 aggressively to keep it selling.

    Airbus swooped in and got a solid product in the C Series. They will maximize its potential. Boeing now has to play to its strengths, much of which are not current but aren’t that far back in the closet.

    • George says:

      I agree. I believe C500 will be size of current A 320 ceo, A 320 neo will move up the size of 12 to 18 seats, same for A 321., maybe 24 more seats. AB will have 120, 150, 190 and 220 seater in 2 classes.

  4. Noah says:

    While there is a compelling narrative around Boeing’s pettiness and B vs A and the rest, I am more curious about what changes, if any, Airbus will make to the C-series. Do we expect just to move final assembly? Will there be more spare parts or other scale advantages? Procurement savings? aircraft changes – i.e. common cockpit?

    • I’m guessing its a bit late for a common cockpit given that the C-series is already flying. Its one of those things that could be retrofitted in, but then you end up with orphan airplanes. Thats not a great way to treat those airlines that committed to the C-series and took early deliveries.

      As for spare parts, etc, I expect the C-series parts to be folded into Airbus’s existing system

    • CF says:

      noah – I doubt we’re going to see any kind of physical changes to the aircraft. If it proves to be successful, then maybe future versions could work toward the Airbus standards, but at this point, it’s all about using Airbus’s heft to sell airplanes.

  5. Seth says:

    I think the decision on CVDs is with the USG and it is disingenuous (but convenient to the narrative) to pin that on Boeing. I would think the Trump administration would take a more favorable view towards a Mobile FAL, but that remains to be seen.

    While this is clearly a big (no cost, no risk) win for Airbus, I have yet to see good analysis about whether the acquisition cost of the C-Series can become competitive with the A320 and 737. That’s been one of the biggest impediment to sales so far: few Airlines want to pay the same price for a smaller airplane.

    • Is it disingenuous to pin the exact amount of the CVDs on Boeing? Probably. But the CVDs exist because Boeing lodged a complaint against the C-Series, without Boeing’s complaint, the CVDs wouldn’t exist.

  6. MK03 says:

    Would this affect the possible development of a Boeing 797? Perhaps this could be a wake-up call for Boeing to try and develop some other market where they can have a niche? Considering there does seem to be strong interest for a 797.

  7. George says:

    I agree with just about everything that was said in the article. However, the statement that Boeing is spending money to pay for lobbyists is only partially true. In the past few years, Boeing has dedicated itself to buying back its own stock, which is now trading at record values. About $30 BILLION has been dedicated to this program. That is enough for TWO new airplane programs. Boeing could easily build the new middle-of-market airplane AND a new 100-150 seat airplane to challenge the CSeries. But will it?

  8. E says:

    Can’t help but wonder if Boeing makes a move on Embraer. It’s a quicker response than a new build and with the Brasilian economy continuing to drag, it would probably be a cheap buy.

    E

  9. Itami says:

    At first I thought this might actually hash out well for Boeing if, like you say, it entrenches the C-Series in a niche Boeing doesn’t compete in while killing the CS500 before it gets off the ground.

    Then I remembered their orders with the Canadian and British militaries are still very much at risk thanks to this whole stunt.

  10. David says:

    You really should look at the Obama record on this issue before you claim that it was “Trump” that started all this. Sorry.

  11. Doug says:

    Somewhat tangential, but I’ve heard many commentators praise the C-Series as a wonderful airplane, yet also admitting its palty order sheet. Honest question. What gives?

    • I bet part of it is airlines are worried that the C-Series might not be around given Bombadier’s financial issues.

    • CF says:

      Doug – Yeah, I think it’s the concern about Bombardier being able to support the airplane combined with huge pressure from Boeing and Airbus to not buy it. This solves both those problems.

  12. Sometimes it feels like Boeing has become the company it acquired, McDonnell Douglas in that there hasn’t been a lot of innovation in the last 20 years. We have the 787 and that’s about it. Otherwise, they are just keeping selling an updated 737, which is a 60’s airplane with a 50’s fuselage along with the 767, 777, and 747-8, which are all from the days before the merger. It feels like McDonnell Douglas after that merger where you had just incremental changes to the DC9 with the MD80, 90, and 717 and the DC10 the the MD11.

    I really don’t like seeing them trying to stifle what is supposedly a great product in the C-Series. Just because Boeing has refused to innovate in the single aisle product category, why should us consumers be stuck with inferior products?

    • Ben in DC says:

      Spot on! As was mentioned above, Boeing cares more about its stock price these days then it does building the next great airplane. They talk a lot about building something new (see 737 replacement and NMA) but are slow to act. Hopefully this is a wake-up call, but I won’t hold my breath.

  13. Matt D says:

    Excellent article. But the screaming question left unanswered is:

    Why did Airbus and especially Boeing abandon the 100-149 seat market in the first place?

    • Ben in DC says:

      I think it’s as simple as timing, as well as the planes that used to cover this market (737, A320) have grown bigger. Those bigger models are more efficient, so airlines buy those instead of the smaller models. The 737-500 was a fairly popular model in this space, but when the 737 got the NG treatment, it made the 600 too heavy to be worth it. The 717 was basically a modernized DC-9-30 that came into existence when regional jets were all the rage. Neither company thinks there are enough sales to justify creating a clean-sheet design.

  14. Alex Hill says:

    This outcome doesn’t seem good for competition. One thing that excited me about the C-Series was a third player starting to break the duopoly on mainline aircraft. This kills that potential.

  15. TMartin says:

    Too bad Boeing closed down the MD80/717 line! This would have been a great option to a smaller and lighter airplane that could better compete with the CSeries. The C17 building is vacant at LGB, not sure what Boeing could do with that.

    I believe Boeing and Airbus did not see many orders for the 717/717-600/A319 (and 737-7MAX, A319 NEO) because their costs are too high and the airframes tend to be heavier than the CSeries E/E2 Series. In fact, over 750 E190/E195 have been built, they are at the lower of the 100-150 seat category.

  16. Ian L. says:

    Yep, Boeing stepped in it here. Looking forward to seeing the CSeries pop up on various airlines, much as I’m glad the 717 is still in service on Delta.

    Extra bonus points if the economics of the CSeries gets routes either off of CR7s or available at higher frequency in markets that aren’t huge to start with. Though I’m guessing all the initial stock i the US will get absorbed by Delta as they replace 717s…and maybe MDs?

  17. Arcanum says:

    My personal theory (for which I have no evidence whatsoever) is that Boeing wanted to beat the C Series until it was almost dead and then buy the program for pennies on the dollar.

    Boeing’s been faffing about for years now with the whole NSA/MOM idea. I think they’ve decided that it’s just not possible to build one platform that can replace the 737, 757, and 767 effectively. Given their resources and track record with new programs, designing 2 different planes isn’t an option, so the easiest thing would be to buy something that’s already available and state-of-the-art – the C Series.

    The CS100 would put Boeing back into the low end of the market. The CS300 would replace the 737 MAX 7 and allow Boeing to scrap the model altogether. A few years down the road, the CS500 (designed by ex-Bombardier staff) replaces the 737 MAX 8. Meanwhile, Boeing itself is free to create a clean-sheet MOM airplane to replace the 737 MAX 9/10, 757, and 767. In the end, Boeing has a modern and efficient lineup (C Series, MOM, 787, 777-X) covering everything from 100-450 passengers.

    Boeing + C Series would have been a perfect match. Rather than pay fair market value though, I think Boeing got greedy and tried to squeeze the C Series program to the point where Bombardier would practically give it away. Unfortunately for Boeing, Airbus (which had already been sniffing around before the Quebec government’s investment in 2016) swooped in and grabbed the C Series instead.

    I’m sure Bombardier and Quebec were only to happy to make a deal with the Europeans while giving the one-finger salute to Boeing. The fact that Trump can gloat about all the jobs the deal will create in the US is just icing on the cake.

  18. MK03 says:

    Also just an observation, though this might not be too accurate as I’m not exactly an aviation expert: I’ve noticed that Boeing gets a lot of flak for developing the 737 MAX and to some extent the 777X. However, I don’t see Airbus getting much of the same hate for Airbus in developing the A320neo and A330neo, even though those are the same concept (re-engined versions of an existing fuselage). In fact, I’ve seen people defending the A330neo despite its rather poor sales at the moment (to the point that airlines like Hawaiian and AirAsia are reconsidering their orders) and arguments that it would be better to focus on the A350 instead. Basically: why all the hate for the 737 MAX, but not the A320neo or A330neo? And besides, people seem to be forgetting that Boeing is said to be developing a clean-sheet design anyway (MoM/797), so while it’s true that the 787 has been their most recent clean sheet, that may not be the case for long.

    Not defending Boeing or anything (I agree that the result of the Bombadier fiasco was their fault and they deserve to lose from it), just wondering.

    • The one difference is that the 737 is a 60’s design while the A320 is an 80’s design. So, it is about 20 years newer. Also, I think the experience is nicer on an A320 than a 737 in terms of seat width and cabin dimensions along with a more modern cockpit (though I’m not so sure how much the 737 has been updated throughout the years). So, an A320 might not need as much updating as a 737.

      As for the A330, I think most people find the current version of the plane fairly comfortable and it’s not much older than a 777, another plane that was comfortable until someone thought it was a good idea to go 10 across in Y. I’ve flown both in J and liked them both. But, if the 330 NEO isn’t a success, I wonder how much of a success the 777X will be.

      I do hope Boeing comes up with a nice MoM plane. I haven’t been on a 787 yet, but I flew on my first A380 this month and liked the experience since it was comfortable and quiet inside the upper deck. I’m hoping that Boeing can come up with something that is like that, but in a more reasonable size.

    • CF says:

      MK03 – I think the 330neo and 320neo are different things. The 330neo wasn’t supposed to be. Airbus sunk its money into the A350, but it turns out that airplane is good for long-haul but not as desirable for some of the shorter routes around. Things like East Coast to Europe need something that’s geared toward shorter hauls. Airbus put the A330neo out there as a middle ground, and it serves a niche. It’s the same reason Boeing is now talking about restarting the 767 line for passenger aircraft.

      The 320neo, however, is a stopgap. I think what’s been said is right. The A320 is a newer design than the 737 with a wide cabin and more. There’s less to fix on that airplane than there is on the 737. I do wish Airbus had gone with a cleansheet design, but it wouldn’t have gotten as much benefit as I think Boeing would have. Of course, it was the 320neo that forced Boeing’s hand. It could have developed a new airplane, but the 320neo would have been done years earlier and Boeing would have had nothing to offer to compete. So it opted to build the MAX to avoid having nothing in the marketplace. It’s a short-term strategy that might backfire in the long run depending upon what Airbus does.

  19. Stewart says:

    GOOD ARTICLE!

    SSmith3104

  20. Jim@CVG says:

    Boeing should spend less effort on political arm-twisting and more effort on designing and building better aircraft. Some years ago, Airbus built an actual prototype tanker to replace the KC 130s. Boeing presented revised KC130 blueprints. The Pentagon wanted the Airbus version, but Boeing lobbyists got the award. Recently, Delta became peeved (an understatement) when the Import-Export Bank a.k.a Bank of Boeing, lent India the money to purchase Boeing jets for Air India to compete with Delta’s flights serving India. I suspect it will be some time before Delta buys any more Boeing planes.

  21. Kevin says:

    There are others on the web who are saying Bombardier failure to respond to the DOC complaint was a fatal mistake in the process. That set the complaint on a path there the “Failure to Respond” takes priority over the validity of any forthcoming arguments from the plaintiff. In essence, there is nearly zero likelihood any future review will result in the elimination of the tariffs.

    • V-man says:

      Join the discussion

      • V-man says:

        DOC and Boeing wanted CSSeries to disappear, Bombardier could not ‘win’ any war with DoC. Demands made were unreasonable and Bombardier lawyers knew this. Witness 229% tariffs! So Bombardier took a different tack….

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