One of the world’s largest aircraft manufacturers, Airbus, is teaming up with a smaller manufacturer, Bombardier, to counter the United States Department of Commerce’s ruling on the C-series dispute between Boeing and Bombardier.

Earlier this year, Boeing accused Bombardier of Canada of “price dumping” their new C-Series aircraft to Delta. The term “price dumping” refers to Bombardier selling C-Series aircraft to Delta for significantly less than list price, and even lower than the cost of production. Delta ordered 75 CS100 aircraft at a price of $19.6 million each, significantly below the list price of $76.5 million each. It is also estimated that the cost of production for each aircraft is around $50 million, meaning Bombardier was losing a significant amount of money on the deal.

Nearly all aircraft deals involve the aircraft being sold for less than list price, but not usually significantly less than the production cost like they were in Bombardier’s deal with Delta. It is believed that Boeing offered 65 737-700s to United Airlines over two separate orders at a significant discount in order to secure additional orders from United for the 777-300ER and the 787. The 737-700 order was later cancelled and converted to other 737 variants, including the new 737 MAX.

Boeing claimed they were unable to compete with the deal, despite them not having an aircraft around the size of the CS100. This is enabled by the Canadian government’s backing and subsidizing of Bombardier, which already received a $1 billion bailout of the C-Series program to protect Canadian jobs.

In a dispute ruled by the United States department of commerce, it was originally suggested that the C-Series jets should incur a 220% tariff for being imported into the United States, which was later increased to 300%.

To counter this, Airbus has agreed to partner with Bombardier on the C-Series project to open an assembly line at Airbus’s facility in Mobile, Alabama. This would allow Delta and other potential U.S. based C-Series operators to bypass this tariff as the aircraft would be built in the United States, theoretically with American workers as well.

After this deal, Airbus will hold a 50% stake in the C-Series, while Bombardier will hold a 31% stake, and Investissement Quebec (the government’s investment agency) retaining a 19% stake. This deal also gives Airbus an aircraft in their product line that can more closely compete with Embraers’s E-Jet lineup, while Boeing continues to lack an aircraft smaller than the 737-700, which seats roughly 140 passengers compared to the 110-120 seat capacity of the CS-100. 

François Legault, the leader of Coalition Avenir Québec,a right/center political party in Canada, mentions Bombardier has given the project off to Airbus in exchange for little: ““All we have managed to protect is the 2,000 jobs until 2041 that cost us, the taxpayers, $1.3 billion.” This includes the $1 billion bailout that the Canadian government gave the C-Series .

The leader of Parti Québécois, a center/left party in Canada, Jean-François Lisée said “They gave away the house to save the furniture,” referring to the C-Series project as the house, and the jobs they’re saving as the furniture.

The C-Series currently has 360 orders, with 123 for the smaller CS-100, and the remaining 237 orders for the larger CS-300. Delta has the largest order, with 100 CS-100s on order, followed by Air Canada, Republic Airways, AirBaltic, and leasing corporation Macquarie Group with 45, 40, 40, and 40 orders for the C-Series respectively.

Featured image by Anders Nilsson via Wikimedia Commons

 

 

Categories: Industry Talk