In a surprise pact that encircles Boeing both politically and strategically, Boeing’s biggest rival is joining forces with Canada’s Bombardier to invest in the smaller company’s CSeries jet program and build the planes for the U.S. market in Mobile, Alabama.
Boeing’s aggressive attempt to stop sales of the Bombardier CSeries jet in the U.S. by government intervention seemed to backfire Monday when European giant Airbus stepped in to say it will acquire a majority stake in the Canadian aircraft and set up an assembly line to build the planes in the U.S.
By 2023, Airbus foresees that it will completely buy out the Bombardier and Canadian government stakes in the CSeries.
“It’s not forever a threesome. Over time, we take 100 percent of the program. That’s the end game,” said Rainer Ohler, Airbus vice president of communications. “At the end of the day, this will be an Airbus program.”
Boeing perceives the CSeries as a threat to its Renton-built 737 single-aisle lineup, and accused Bombardier of unfair, subsidized competition in a petition to the U.S. government. The Commerce Department earlier this month duly ruled to slap prohibitive tariffs on U.S. sales of the CSeries.
The future of Bombardier’s program seemed in real jeopardy. Yet in one stroke, Airbus has secured that future.
The CSeries “program is now set for growth,” declared Airbus Chief Executive Tom Enders in a hastily arranged press teleconference Monday. “We’ll make it fly.”
Bombardier Chief Executive Alain Bellemare said “Airbus will bring global scale and reach” to the CSeries program with its supply-chain expertise, manufacturing know-how and global after-sales service network.
Combined with Bombardier’s aircraft, he said, “We can unleash tremendous value.”
He said Airbus “will accelerate the sales momentum, and we’re highly confident we’ll be able to secure more sales.”
Enders agreed, saying that “quite a few potential CSeries customers” — and U.S. airlines in particular, including Airbus customer JetBlue — have been very impressed with the CSeries jet. They have held back from committing to it because its future as a business was in doubt.
With Airbus backing in place, he said, those airlines “will be convinced.”
Trade case uncertain
The news of a U.S. assembly line throws the U.S. trade case against Bombardier into deep uncertainty.
Enders and Bellemare announced a partnership that initially gives Airbus 50.01 percent ownership of the CSeries with Bombardier retaining a 31 percent stake and the government of Quebec 19 percent.
Airbus has options to buy out those smaller stakes at fair market value seven-and-a-half years after the deal closes, meaning it could take full ownership around 2026.
In a move clearly designed to address U.S. concerns that sales of the plane to American airlines would cost Boeing manufacturing jobs, Airbus said it will set up a second CSeries final-assembly line in Mobile, Alabama, for delivery of those jets sold to U.S. airlines.
The primary CSeries assembly line is in Mirabel, Quebec. Airbus already assembles its own A320 single-aisle jets in Mobile.
The aviation world was stunned Monday. Journalists aboard a new Boeing 787 being delivered to Qantas in Everett dropped that story and bolted off the plane to listen in on the Airbus conference call.
In its first response Monday, Boeing insisted that the CSeries still represents unfair competition — indeed doubly so, since Airbus, like Bombardier, receives government subsidies.
“This looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government,” said Phil Musser, Boeing senior vice president of communications. “Our position remains that everyone should play by the same rules for free and fair trade to work.”
Airbus insisted that its intervention was not prompted by the Commerce tariffs.
“We are not motivated by anything the competition is doing,” Enders said.
He said talks with Bombardier began only in August. And though two years ago Airbus rejected a Bombardier overture to buy the CSeries, which was then in deep trouble with few sales, Enders said that now, “The stars were all aligned.”
Enders said that Airbus has learned from its own airline customers that they consider the CSeries a “great airplane.”
With the aircraft certified and airlines impressed by its performance, he said, it was “the right time for both companies.”
The trade-case ruling against Bombardier had left Delta Air Lines hanging, unsure how it could take its order for 75 CSeries 100 jets with the pending threat of tariffs that would quadruple the price.
On Monday, Bellemare said Delta “will be willing to wait to get the airplanes in their fleet.”
The implication is that jets assembled in the U.S. will not be subject to those tariffs, though Boeing may argue otherwise in the days ahead.
It may not be clear how the trade case will fall out until the deal announced Monday is implemented.
Airbus’ Ohler said the partnership with Bombardier is expected to close in the second half of 2018. It will then take some time to set up an assembly line in Mobile.
It’s unlikely Bombardier will be able to offer U.S.-built CSeries jets before 2020.
In a statement, Delta said it couldn’t comment on the Airbus proposal, but added: “We look forward to introducing the C Series into our fleet.”
Enders said how the tariff case plays out is up to the U.S. government. “We believe the case should be terminated,” he said.
No upfront investment
Astonishingly, Airbus is acquiring its initial half share of the CSeries with no money down.
Instead, Airbus will provide Bombardier with expertise and personnel for its supply-chain procurement, sales and marketing, and customer support.
Clearly, Bombardier felt forced into this deal by its precarious financial position, exacerbated by the uncertainty created by the U.S. tariffs.
Yet Bellemare said he wasn’t aggrieved at trading away half the equity in the program without any upfront investment. Instead, he said he’s excited by the future ahead.
“This brings a ton of strategic value,” he said. “Airbus brings certainty to the future of the program.”
Enders insisted on the conference call that the CSeries “fits in very well with Airbus’ existing portfolio of single-aisle aircraft,” discounting any overlap between the two aircraft families.
The CSeries comes in two models so far, the 110-seat and 130-seat versions, the larger of which could stretch to 150 seats.
Enders indicated that Airbus no longer expects to sell any more of its own smallest model of that size, the A319, which hasn’t won an order in five years.
And he said the next Airbus model up, the A320, is focused on 180 seats and higher.
Both Enders and Bellemare repeatedly referred to the deal as a “win/win” for all parties connected with Airbus and Bombardier.
It certainly appears that there is one big loser: Boeing.
The U.S. manufacturer’s big play to stop the CSeries now looks to have made its challenger stronger — and perhaps also strengthened Boeing’s perpetual nemesis, Airbus.
Information in this article, originally published Oct. 16, 2017, was corrected Oct. 20, 2017. A previous version of this story incorrectly stated that Airbus could take full ownership of the CSeries in 2023.