Airbus/Bombardier: more fear than love
Boeing’s bleating has attracted the wolves of the aerospace world
Born today, Shakespeare would be in Hollywood, Bach on Broadway and Machiavelli would run an aerospace company. The Airbus deal to take over production of Bombardier’s C-Series aircraft, cash-free, is a transaction of such artful commercial malevolence it deserves applause.
Airbus controls more than half the global market for single-aisle jets, but only about a quarter of the US market. The C-Series is smaller than the jets that Airbus and Boeing make, but its cutting-edge efficiency made it a potential threat to both. Hence an antitrust complaint from Boeing that might have killed the plane, and Bombardier, with punitive tariffs.
A so-called screwdriver plant in Mobile, Alabama, is key to the deal with Airbus. American workers assemble parts that arrive from Toulouse into US-made planes in the A320 family. Final assembly of the C-Series at the same plant will result in a tariff-free product for US airlines. The prospect of manufacturing jobs in a Republican state is also a valuable investment in political capital.
Bombardier gets to survive, a position reflected in the terms. It and Investissement Québec hand over 50.01 per cent of the venture making the planes, retaining 31 per cent and 19 per cent respectively. Airbus also gets five-year warrants over 5 per cent of Bombardier stock. The Canadian manufacturer gets non-voting shares in the venture, paying a cumulative 2 per cent annual dividend — but guarantees to fund the first $350m of cash needs in each of the first three years.
Confronted by a duopoly with deep pockets, a good product is not enough. Bombardier’s weak balance sheet precluded loss-leading initial sales, or the sort of vendor finance that Boeing extended to the now failed Monarch Airlines. And airlines need to be confident that a supplier will thrive.
Airbus, which rejected a similar deal in 2015, could afford to wait. The company says it sees a market for 6,000 C-Series planes. A sign of commitment would be to kill off the A319 Neo, a small jet that has not attracted orders in years. Failure to do so will raise suspicions Airbus is a fox using a dying rival to damage the true enemy rather than a lion championing the Bombardier brand. Meanwhile, expect Boeing to raise competition concerns. Its own protectionist roaring appears to have led it into a trap.