Airbus buys majority stake in Bombardier CSeries passenger jet business
cbc.ca
cbc.ca
The hack allows Bombardier to recoupe its design costs by selling planes. They will no doubt get less margin selling them through Airbus but it is better that having to flush that investment down the tubes.
To me, the whole situation is a schoolyard example of "having your cake and eating it too".
That's what this attitude results in: trade war.
Without free markets you end up having worse products win which is bad for everyone.
It's not only the quality of the products that compete, it's living standards, health laws, worker protection, environmental protection, social welfare, healthcare, educations and human rights that compete.
If I live in a (economically) large enough country that trades with another country that fail providing reasonable levels of all of the above for their own people, mostly to the gain of some oligark or another, there is little reason to offer totally free trade.
An optimal tariff, possibly even invested back in the originating country - or even used to fund healthcare or education - is most likely globally less maximized in term of number of cheap items per dollar, but could still help stimulate both economies, maybe help the poorest, and hopefully avoiding a race to the bottom for the 99%.
[edit]... This doesn't mean that a 300% tariff on airplanes is justified between EU, US and Canada. Or maybe we in EU can fund your healthcare if you just buy from Airbus in the future...
Canada has single-payer ("free") health care, and plans to introduce a national carbon tax. There's a narrow socio-economic gap in school results[0].
Tell me again how the United States has better health care, environmental protection, and education?
But I think the problem is more related to China, India and other upcoming "tigers".
But economically and in terms of good foreign relations, definitely. Closing the gates in such an overtly hostile way to foreign businesses competing with your home grown ones hurts international trade, and ultimately that can end up badly for everyone over the long term, even if it brings some short term benefit.
The jury's out on this one. The effects international free trade can have on existing industries can be devastating as jobs are rerouted from rural manufacturing areas to the neighborhood of transshipment ports. The US since the adoption of NAFTA has resulted in a sharpening of the divide between rural America and the cities, and has brought mass poverty, unemployment, and associated ills to communities that were previously dependent on protected factory jobs. And although new jobs have been created in the cities, these jobs have been fewer, higher paying, and requiring a different skillset.
As a result of free trade, we therefore have: (1) higher unemployment, (2) higher concentration of wealth, (3) a great migration that has disrupted rural and family identities, and (4) increased instances of opioid and meth additions and related problems (violence, burglaries, etc.) across the board but especially in those same "left behind" communities.
But hey, our GDP is up. So by the only metric economists look at, I guess it was a success.
Proponents of the United States variety of capitalism preach and espouse (or at least used to) free trade as both gospel and a kind objective truth while ignorant (at times on purpose and at times sufficiently unaware) of how big business and the government are bedfellows scratching each others backs (big sugar, the corn lobby, big oil, the automakers, other agribusinesses such as dairy, telecom, Silicon Valley and other tech companies, the military-industrial complex, and commercial aviation to name just a few: Boeing straddles the last two industries).
In comparison, Canada has more hybrid approach somewhere between a market economy and a command economy practically necessitated by the confluence having a large land area, a relatively small population, and an economic, cultural, and military powerhouse for a next-door neighbour. And yes, similar sort of mutual government/business back-scratching does occur in Canada. However, most if not all of the policies that Canada has is mostly to prevent itself from being economically and culturally drowned-out/overwhelmed (do notice that I left out militarily). In spite of the investments that the various levels of Canadian government make, they readily allow foreign investors and corporations to buy or merge with large, iconic Canadian businesses after assessing the impact through mandatory reviews much like US Congress does (Molson Coors, Target buying Zellers from the Hudson's Bay company, and Wendy's merging with Tim Horton's, Tim Horton's later repatriating itself, then merging again with Burger King.
TL;DR There is nothing inherently wrong with looking out for your own best interests. But, there is something wrong with the pot calling the kettle black (hypocrisy).
https://en.wikipedia.org/wiki/Molson_Brewery
https://en.wikipedia.org/wiki/Molson_Coors_Brewing_Company
https://en.wikipedia.org/wiki/Zellers#2010.E2.80.932013:_Lea...
And that is a big problem (among a boatload of others) with the current American administration. It is not America First but America only. That with no consideration for their "allies" or applying a different set of standards to others...
In this case the Trump administration wanted to protect Boeing against Bombardier by denying access to a key market, making Bombardier's entire C-* project unprofitable. The outcome (so far) is that Airbus/Bombardier can still make the airplane and export to any country from either Canada or the US, whichever has the best trade conditions. This does not sound favourable for Boeing's export business.
AIUI this isn't an unusual outcome: A government wants to protect domestic business against imports, accidentally hurts its own exports and offends someone in the process. The domestic business may be its best interest but that's hardly obvious.
No. However, "best interests" can get very complex when considering the subsequent reaction of other parties - please see the iterated prisoner's dilemma.
[1] The 'light house customer' metaphor was a favorite of Chris Bennet's at NetApp. They were a customer that if they adopted your product, others in the same business would see your product as a "safe harbor" and would be willing to buy your stuff too. The unwillingness to be 'first' in an industry where one plane represents a big chunk of capital is strong.
The hypocrisy is strong with Boeing though. Boeing's received over $8 billion in tax breaks (errrr subsidies) from the state of Washington alone.
https://www.seattletimes.com/seattle-news/boeings-historic-t...
> Arch-rival Airbus has swooped from the wings to grab majority control of the C-Series and proclaim that the 300% tariffs can be side-stepped via the simple remedy of conducting the final assembly of planes destined for US customers in Alabama.
So, how much of a final assembly counts as final assembly? I remember a story of how Chinese shirtmakers circumvented tariffs against Made in China shirts: they sent the body of the shirt and sleeves to Hong Kong, workers in Hong Kong sewed the sleeves onto the shirt, slap "Made in Hong Kong" on it, and problem solved...
Apparently I'm not the one asking this question: http://www.chicagotribune.com/business/ct-biz-airbus-bombard...
> "There is a legal question of how much of the parts and components and value-added needs to actually happen in the U.S. for tariffs to no longer apply," said Chad Bown, a senior fellow with the Peterson Institute for International Economics. "You can't just fly an airplane to Alabama and say it's made in America."
Then, over the border the finished, packaged products go, tariff-free, under the auspices of NAFTA.
Separately, I'll mention that I've heard commentary on Canadian news to the effect that the Provincial and perhaps National governments provided assistance -- not taking an ownership stake; rather, direct financial assistance -- to Bombardier to aid in development of the jet.
To the extent that expected returns, financial and employment and whatever, are now leaving the Province and Canada, this leaves those governments out in the cold and deprived of expected returns. I don't know all the details of this, and perhaps what I heard was biased, but it was described at length and very critical e.g. of the governments not having built greater assurances into the aid they provided.
From the article: "a second assembly line for the 100- to 150-seat plane will be set up at Airbus's facility in Mobile, Ala., so the plane can be sold in the United States"
By the way, I'm convinced that a big reason that small car manufacturing has moved to Mexico is the list of free trade agreements they have.
The Congress wrote the law, at Boeing's behest, to encourage American manufacturing employment. Airbus and Bombardier's deal sounds an awful lot like it accomplishes that.
The Department of Commerce announced its affirmative preliminary determination in respect of Bombardier's alleged dumping under its countervailing duties (CVD) powers from the Smoot-Hawley Tariff Act of 1930, as amended [1][2]. The Tariff Act was passed "to protect American jobs and farmers from foreign competition" [2].
There is a secondary concern in national security, e.g. if a country's automotive sector is decimated by foreign competition then it can no longer build tanks. But the driving concern behind "trade wars," and certainly this administration's enforcement of them, is employment.
[1] http://enforcement.trade.gov/download/factsheets/factsheet-c...
[2] https://en.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act#End_of...
This is a huge blow for the Canadian aerospace industry, but the best that BBD could do in a bad situation.
The plane itself is great, but management incompetence and customer worries about the company's long-term prospects made it a hard sell. Then, when BBD did make a sale to Delta, Boeing's naked politicking and the current administration's unreasonable duty made the situation untenable. BBD is essentially handing over the keys to the kingdom here: Airbus gets control of the program for nothing (they only have to allow the C series to be manufactured at an existing plant in Mobile) and if the program is successful they have the right to buy out the entire partnership; if it's unsuccessful they can walk away. Plus, it's unclear to me whether it's a way to actually push the C-series or a way to start conversations around it and then upsell customers to one of Airbus' existing narrowbodies. Again, not a good situation for BBD.
Airplane manufacturing is a heavily political, heavily subsidized business, and since Canada is much smaller than the other players on the stage (US, EU, China, Russia) with a non-existent defence program it doesn't have the money or the weight to effectively compete.
This to me is pretty absurd show of irony and somewhat provocative move by the government.
On the plus side, my BBD stock jumped 20% today, so I unloaded it. Not all bad news I suppose...
[1] https://www.reuters.com/article/us-wto-boeing-idUSKBN19029Q
[2] https://www.canada.ca/en/revenue-agency/services/scientific-...
Unfortunately for us Canadians neither BBD or the government has the means to take on Boeing and the US respectively. My only hope - and a slim one - is that Boeing is permanently frozen out of defence procurement here.
> Airbus's own slightly bigger A319neo has not clinched a
> deal for at least four years.
Also, don't forget the China angle. The Chinese state-owned Shenyang Aircraft Corp is a major partner in the C-Series project. And there's a C-Series technology sharing arrangement with another Chinese state-owned aerospace firm. I don't know what kinds of relationships Airbus has already built in China, but they're about to get much stronger.
IIRC, Boeing built global strategic relationships for it's 787 program as part of it's out-sourcing strategy. That turned out to be horribly inefficient and a bust. But from a _political_ standpoint I imagine it's been quite successful. Of course, Airbus pioneered the strategy of using multinational sourcing for primarily political reasons, but it looks like they're poised to take it to the next level--Airbus might be on the road to effectively being a domestic manufacturer in Europe, North America, _and_ China.
That's because the A320 was bigger than the 737 from the start. This means the 319 (and the 318 to a much higher degree) was heavier for its number of passengers than it needed to be, while the 737 was right at its sweet-spot. More weight always means higher cost to operate. Higher cost to operate per passenger always means lower margins for the airlines. This trade-off exists with every airliner. Still, airlines bought both 318 and 319 because those planes are able to take off with the same amount of fuel as the 320, giving them the longer range that was necessary to fly certain routes. (London - New York being the obvious example for the 318.)
The new engines and wing tips of the 320neo family have yielded range increases that were sufficiently high to make the 320neo and 321neo able to fly those routes that the 319 had been used for before and the planned 321neo LR ("long range") is going to do the same for the 318's routes. At the same time, Boeing is now offering the similarly re-engined 737 at a much lower price that Airbus will want to sell the 319 at. Thus the 318 did not even get a neo version and the 319neo has not sold well.
A similar growth has happened with the 737 family. Which is exactly why Bombardier decided to target the absolute lowest end of the 737's market and the passanger/range area below that. It's just not worth it for Airbus and Boeing to design an entirely new plane in this segment, but their existing products are too heavy to compete against the C-series. Boeing decided to compete by selling their planes at very high discounts, which Airbus is unwilling to do because of the high demand for the 320neo family.
Buying into the C-series solves this issue marvelously for them. Now they have a better product than Boeing across the entire single aisle airliner market. (Mostly because those products are significantly younger than the 737, the only single aisle Boeing still in production.) They have defeated the threat posed by a new single aisle airliner that Airbus just could not compete with in its specific segment. They could even use the C-series to relieve pressure on their 320 family production lines, which are projected to be unable to keep up with demand for many years. Offer those airlines that would be a good fit for the 319neo, but will go for the much cheaper to buy 737, a C300 instead.
The USA, more than most other countries, has plenty of "thin" routes between minor cities that can only be profitable with a small, efficient plane like the C300. If they could fill an a320 then Delta would have been looking at that from the beginning. I don't think this is a likely concern.
Not sure where people discussing this as a US vs CA or that this is somehow a win are getting those ideas from.
No one gets upset when agricultural products (many of them, frankly, more high tech than these things) get caught up in similar trade disputes, which happens regularly too.
I can't help but think this is driven in large part by a perception of this as a US assault on Canadian innovation, when it's really just another corn war.
Most of those are now out of production or nearing the end of their production run, which is why new, cheaper to operate designs for this category are being developed (Embraer and Mitsubishi are also developing new regional jets).
The funny thing is that Boeing doesn't even have a competing product in this market!
Boeing underestimated Airbus in the 70s and 80s, and they’re trying not to make the same mistake again. They were trying to head this off before it gets that far.
It was also a huge issue in the UK as Bombardier is the largest private sector employer in Northern Ireland which is politically critical to the current UK Conservative government as they are a minority and depend on support from one of the unionist NI parties to function.
I'm sure the UK government desperately wanted a solution to this crisis - having a government collapse in the middle of Brexit negotiations would have been a disaster.
That's the kind of market Bombardier was aiming at. And it's a bad bet, protectionism or no. It's very likely this plane would have failed regardless.
With this move by Airbus, the government's stake in the project was reduced from 49% to 19%. I'm no economist, but it seems that the crisis was avoided?
Note well: I do not know if that is the correct interpretation.
"If Airbus’s plan works, it’s ingenious. It will get a 50.1% stake in the C-Series without paying a penny and will collect some cheap warrants on Bombardier’s shares"
https://www.theguardian.com/business/nils-pratley-on-finance...
I guess the Airbus/Boeing duopoly is here to stay. Bombardier looked like a promising future competitor... They still have their rail business, so all is not lost.
Agreed. It's a loss for Quebec, Bombardier, Canadian workers (who lose jobs to Alabama), Canadian taxpayers, and most importantly, for free trade and free markets - this will only establish anti-competitive policies as an accepted norm, a dangerous precedent.
Not that anyone cares about economics any more; it all seems political.
Wouldn't it have the opposite effect? Quebec subsidized a local industry and lost.
Now Bombardier doesn't have to pay the ridiculous 300% tax. They are subject to less regulations and more free market.
Comac is a promising competitor, too, and are explicitly targeting the bread-and-butter size classes of Airbus/Boeing.
See: https://www.cnbc.com/2017/10/16/airbus-teams-up-with-bombard...
It certainly isn't a payday for the Quebec government, but I suppose that 19% of something is better than 49% of nothing. One can _still_ criticize the irresponsible handling of taxpayer money AND now (if the manufacturing part is true) the benefits of the original buy-in will not go to Canadian factory workers.
The company they now own 50.01% pays the manufacturing and sales costs, so they're taking on that.
Using Airbus's Alabama factory will mean they can build/sell planes in the US and avoid 300% duty/tariff on those, and (according to the claims) "they'll secure more orders and double the value of the program" - which doesn't seem completely implausible...
Even if that's wildly optimistic, I'd guess even just farming out the 75 plane Delta order to Alabama and saving 220% and/or 300% in duty means a _lot_ of dollars (and cynically, if they were on the verge of losing the whole program, it'd be a super tempting lifeline to be thrown by Airbus...)
given the US [unsurprisingly] imposed 300% duty as a counter measure to the perceived government subsidies, i think the more smart thing would be to buy from Bombardier some military hardware (doesn't matter that it doesn't produce it - it could have bought some very small military contractor) at high-high prices like everybody else does - US/Boeing, EU/Airbus, etc..
Not to pick on the parent statement, but it brings up what I think is an important point: Let's not take these claims by the US government at face value. The US very well may have imposed the duty to help a US company, and used the rest as justification. Economic isolationism/nationalism is an explicit policy of the US government.
Boeing likely mis-calculated the politeness of their neighbors.
Boeing is scared (panicked?) of having a new entrant. The commercial jet industry has huge costs of entry that act as a very high barrier for newcomers. The C series, if successful, would have acted a stepping stone into bigger jets that would be competing directly with Boeing.
Airbus buying the C series is, in a way, a small victory for Boeing. It leaves the market as a duopoly and ensures that Bombardier will not get into bigger planes. It also sends a strong signal that no third competitor will be allowed. At least until the Chinese government heavily subsidizes a homegrown competitor with huge military tanker contracts.
Opposed to all the other airliner manufacturers that don't get government contracts? From the article:
> The Quebec government invested $1.25 billion in exchange for a 49.5 per cent stake in the CSeries last year. The federal government also recently provided a $344-million loan to Bombardier, which struggled to win orders.
And of course Airbus is partially owned by France, Germany and others. Everyone in this story has deep government ties.
I was working years ago at a defense contractor who was a sub on a Boeing radar project. The running joke was the Government was giving Boeing work to let it capitalize the design of a new plane.
[1]https://www.fool.com/investing/2017/01/30/boeing-earnings-th...
That doesn't seem like a smart move when these events threaten thousands of Bombardier and supply chain jobs in Canada and Northern Ireland and when you're also hoping for billions in business selling military aircraft to both the Canadian and the British governments in the near future.
https://www.washingtonpost.com/blogs/govbeat/wp/2015/03/17/t...
Bombardier Inc. announced Monday it has sold a majority stake in its CSeries passenger jet business to European aerospace giant Airbus for no cost.
From the article: "Airbus is not assuming any debt as part of the deal."
"The current Airbus A320, a rival for the CSeries, is for 180 passengers or more and Airbus hasn't sold an A320 in three years."
A320neo (the "current Airbus A320") orders:
2015: 583
2016: 343
2017: 47
According to this list: https://en.wikipedia.org/wiki/List_of_Airbus_A320_orders, the A319ceo (current) has a backlog of 50 orders and the A319neo has just 20.
Technically "Airbus hasn't sold an A320 in three years." isn't right about the A319 as there have been orders the last three years, agreed no one wants it though.
Most A319neo orders look to be modified to be A320neo orders, so customers moving to a larger jet - perhaps it's cheaper than cancelling and buying Bombardier/Embraer. Or there is no demand for small planes in the ~120 passengers class.
No sure where you've got that from, the A320neo has 5000 orders, the 737Max has 4000 orders with the MAX7 not selling well (same size as A319neo).
And this should further endear Canada to the EU over the US, and probably make the Brits also happier about the EU (The British jobs were most at risk).
I am no expert but that's what it looks like to me. Nice move if so.
For example, the Air Force bid that was about to be won by Airbus got re-spec'd in order to match the requirements with what Boeing happened to provide (number of engines, iirc).
TBH it's not that clever, it's just that the US can use it's out-sized economic might to force smaller countries to accept it.
And as a US taxpayer i’m all in favor of foreign governments subsidizing my travel with cheaper commuter jets.
The C series are also very quiet (marketed at 4x smaller footprint/up to 20db reduction). Airports are/were quite excited about what these new aircraft mean for residential noise mitigation (billions across the US).
https://www.upi.com/Boeing-receives-983M-contract-for-aircra...
That's a great thing. As canadians, we are learning that we can't count on the US to act in good faith so this is a nice thing. We should strive to be less and less dependant on our neighbor.
A lot of people think their management decline started when they moved their HQ to Chicago, away from their R&D and manufacturing. But prior to this incident they demonstrated not only how much influence they can wield in the US Govt, but their willingness to use it whatever the appearance, with the KC-46A contract - the US Military had already decided to buy Airbus's a330-derivative tanker aircraft, but Boeing managed to get the decision overturned and their objectively inferior tender accepted instead. From the press coverage at the time the unfairness, and near-corruptness, of this manoeuvre was not lost on other governments.
And now this - again they have demonstrated their hooks into government at the highest levels and willingness to use them for dirty tricks, in this case an outrageous 300% tariff on a tiny non-competitor based on absurd arguments about healthcare costs. Literally no-one in the aviation community thought it was even slightly reasonable.
So now they've driven that tiny company and its airline program (and to be fair, they made a lot of their own mistakes) into the arms of their biggest competitor and by extension the EU. The biggest strategic blunder imaginable. Now the C300 is an EU program. And yet they just keep upping the ante:
https://twitter.com/Boeing/status/920373843142864896
Last week they were trying to dare the governments of Canada and Ireland to start a trade war. Now it's the governments of France and Germany as well. And yet they continue to just hold down that accelerator. It's not lost on anyone that their theme of "america first no matter what" and hardball negotiations/threats by twitter seems eerily reminiscent of the current government in DC.
So yeah. Boeing, and by direct extension the US Government, seems intent on playing an ever more dangerous game of Trade War Chicken with an ever increasing list of opponents. If they win the battle but lose the war, like they did with BBD, the solution is to start a bigger war. It's shocking, it's arrogant, and America's biggest exporter has a lot to lose should anyone decide to call their bluff.
The geopolitical implications of this are interesting too. Just like there's no way Boeing is acting like this without assurances from the government that it's got their back, there's no way Airbus would have moved without assurances from its own member governments. The speed of the action was breathtaking - negotiations only started in August. This can only mean that the EU feels it has the upper hand should any real dispute arise. It's pushed Canada closer to the EU too. I wonder what's next.
Not sure what Trump's endgame here is other than alienating once allies and economic partners. Trump went instantly to nuclear and Trudeau was forced to respond in kind. This is what happens when diplomacy is little more than namecalling and 'my way or the highway.' The USA isn't this unstoppable juggernaut everyone must bow down to and accept being bullied from. Europe, China, Japan, Russia, Brazil, Turkey, etc are all vying for influence and will take advantage of our every misstep. Europe certainly did today.
Trump gets to say that he brought jobs to USA.
Your point about a stretched C-Series being off the table stands, but that's very different from Airbus suffocating the C-Series altogether. With the A319 out of the way Airbus would have every incentive to position the C-Series against the smaller 737MAX variants.
Is the range a big deal for most customers? Or are the CS300 numbers not realistic to put it in the same class as the 737MAX 7?