
Airbus buys majority stake in Bombardier CSeries passenger jet business - protomok
http://www.cbc.ca/news/business/bombardier-airbus-c-series-1.4357567
======
ChuckMcM
This is an interesting hack. According to sources Airbus gets 50.1% of the
Class C jet's "business", in exchange for building them in a pre-existing
plant in Alabama so that they are immune to the 300% tariff that the US was
planning to impose (considering to impose?) on them.

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.

~~~
tareqak
It might benefit Bombardier and their investors, but if the C series jet was
going to be manufactured in Canada by Canadian workers, this ends up harming
those (potential?) jobs in favour of American workers who previously never had
any sort of relationship with Bombardier.

To me, the whole situation is a schoolyard example of "having your cake and
eating it too".

~~~
netsharc
A Guardian article [https://www.theguardian.com/business/nils-pratley-on-
finance...](https://www.theguardian.com/business/nils-pratley-on-
finance/2017/oct/17/airbuss-ingenious-bombardier-plan-is-comeuppance-for-
boeing) says:

> 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...](http://www.chicagotribune.com/business/ct-biz-airbus-bombardier-
deal-20171017-story.html)

> "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."

~~~
pasbesoin
Mexico has been an avenue for this, for the Chinese. Parts/assemblies shipped
to Mexico for final assembly -- perhaps, in some case, as I understand it, in
an extreme bending of the... "rules", simply for packaging.

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.

~~~
igrekel
The province did take a stake when it provided assistance but the stake taken
was on the CSeries program end not on BBD itself. And hat stake just got
diluted a while lot by the deal with Airbus (going from 49% to less than 20%).

------
allengeorge
I'll post what I did earlier:

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.

~~~
verelo
While I agree with everything you said, I would add that I think the US
government is being anti-competitive here and a bit underhanded. Boeing has
historically got a pretty sweet deal from the US government [1] in tax breaks,
$8.7B worth! Not in the form of R&D grants like BBD get from Canada, a similar
approach they take to other industries such as software development [2]. The
outcome here is virtually the same, it’s just an alternative approach.

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](https://www.reuters.com/article/us-wto-boeing-idUSKBN19029Q)

[2] [https://www.canada.ca/en/revenue-
agency/services/scientific-...](https://www.canada.ca/en/revenue-
agency/services/scientific-research-experimental-development-tax-incentive-
program.html)

~~~
allengeorge
Oh, definitely - I t’s a case of the pot calling the kettle black. Not only
does the US give Boeing huge tax breaks, but the defense expenditures are
calculated to subsidize the commercial aircraft program.

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.

------
strictnein
A good friend worked at Bombardier until recently and I got the full sales
pitch and walkthrough of a model of one of these planes a couple of years ago
at an overseas airshow. They were really nice and had some innovative
features. Unfortunately, this was a big bet by Bombardier and it failed. "They
are fucked" were his words, when I asked him about it today.

Not sure where people discussing this as a US vs CA or that this is somehow a
win are getting those ideas from.

~~~
ajross
Is it too much just to ask why anyone cares so much? I mean, this was a "big
bet" by Bombardier to enter a market dominated by an aircraft _designed 49
years ago_. I mean... it's a mature market. You don't make plays for a mature
market unless you have a clear value advantage, and I don't see that
Bombardier does in any real sense.

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.

~~~
caf
The CSeries is a regional jet. The market it's aimed at is serviced by
aircraft like Boeing 717, BAe 146, Embraer E-jet, Fokker F100 and Bombardier's
own CRJ700.

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!

~~~
peckrob
Boeing isn’t fighting the CSeries for what it currently is. The CS100 and 300
in themselves don’t directly complete against any Boeing planes. Their worry
is that a successful CSeries could spawn a stretch CS500 that would be begin
moving in on the 737.

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.

------
pmilot
This is pretty big news for people living in Québec, as the Québec government
invested heavily in the C-Series last year. At the time, the move was
criticized as a big gamble and an irresponsible handling of taxpayer's funds
because the C-Series' success was far from guaranteed and there were
legitimate concerns about Bombardier's leadership.

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?

~~~
Cyph0n
According to the article, Airbus bought the stake "at no cost". Unless I'm
misunderstanding something, shouldn't this be a loss for Quebec?

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.

~~~
forapurpose
> shouldn't this be a loss for Quebec?

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.

~~~
stale2002
How is it a loss for the free market?

Now Bombardier doesn't have to pay the ridiculous 300% tax. They are subject
to less regulations and more free market.

~~~
forapurpose
The 300% tax still distorted the market by pushing Bombardier into a deal they
otherwise might not have taken, into investing resources in a location
(Alabama) that they might not otherwise have chosen, and by taking a
competitor out of a marketplace with very high barriers to entry.

------
moeadham
Bombardier is hugely popular in Québec. The press coverage here has been so
anti-boeing they have launched a PR campaign. Any politician that signs any
military contract with Boeing is going to pay a huge price in Québec; maybe
high enough to lose an election.

Boeing likely mis-calculated the politeness of their neighbors.

~~~
dgudkov
Boeing now trying to fix this PR disaster and airing ads on Canadian TV saying
how much they love Canada.

~~~
allengeorge
Yeah. I don't know many people (outside of Manitoba, maybe?) who are buying
that load of bovine feces. No one liked the BBD bailout, but we can all see a
300% duty for what it is: naked politicking.

------
chinathrow
And Boeing issuing statements like it's kindergarten.

[https://twitter.com/Boeing/status/920373843142864896](https://twitter.com/Boeing/status/920373843142864896)

~~~
valuearb
Boeing is a bunch of idiots, the C series didn’t compete with them at all. A
company like Boeing that gets massive government contracts and depends on free
trade shouldn’t be shitting on free trade.

~~~
jonknee
> A company like Boeing that gets massive government contracts and depends on
> free trade shouldn’t be shitting on free trade.

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.

~~~
acomjean
I presumed the parent meant huge non-airplane military contracts. Airplanes
are 69% of revenue but just 54% of profits (now that the dreamliner is in
production)[1]. The rest is defense were margins are higher.

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...](https://www.fool.com/investing/2017/01/30/boeing-earnings-the-defense-
edition.aspx)

------
Zarathust
"Buys" is a strong word for "gets for free". From the article:

Bombardier Inc. announced Monday it has sold a majority stake in its CSeries
passenger jet business to European aerospace giant Airbus for no cost.

~~~
panzer_wyrm
Isn't the proper term gift?

~~~
nv-vn
No. The cost just wasn't monetary. If I understand correctly, Airbus gets the
CSeries and Bombardier no longer has to make a profit out of their debts. So
basically Airbus paid for CSeries by taking on CSeries' debts. Also,
Bombardier still owns stake in CSeries, so any profit from CSeries is still
positive for them. Since Airbus can provide the manufacturing in the US, this
seems like a net profit compared to the alternative.

~~~
Zarathust
This is incorrect. Airbus does not share existing debt, but may contribute up
to 300M per year to new debt for the next 3 years.

From the article: "Airbus is not assuming any debt as part of the deal."

------
_Codemonkeyism
Quality journalism

"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
    

~1000 orders in the last three years, with 5000 orders all in all.

[https://en.wikipedia.org/wiki/Airbus_A320neo_family](https://en.wikipedia.org/wiki/Airbus_A320neo_family)

~~~
joelhaasnoot
That should probably read A319 - several other more reputable aviation sources
mention this (for instance:
[https://www.forbes.com/sites/richardaboulafia/2017/10/17/bom...](https://www.forbes.com/sites/richardaboulafia/2017/10/17/bombardier-
airbus-cseries-boeing))

According to this list:
[https://en.wikipedia.org/wiki/List_of_Airbus_A320_orders](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.

~~~
_Codemonkeyism
Thanks for catching that!

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.

~~~
skgoa
There is huge demand, but the higher purchase and operating costs of the 320
family compared to the 737 family and C series make the 319 uncompetitive.

~~~
_Codemonkeyism
"[...] compared to the 737 family [...] uncompetitive."

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).

------
addicted
Sounds like Airbus is getting parts of Bombardier for cheap and Bombardier is
getting the clout to fight Boeing and the US's patently obvious, possibly
illegal, trade protectionism.

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.

~~~
plandis
What? Boeing’s claim is that Canada illegally subsidized Bombardier which
seems to be true. But yes it’s the US’s fault that happened

~~~
athenot
We're just more clever at subsidizing Boeing in ways that don't look like a
subsidy.

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).

~~~
vanattab
I believe athenot is referring to the KC-X program in which Airbus definitely
got screwed.

[https://en.wikipedia.org/wiki/KC-X](https://en.wikipedia.org/wiki/KC-X)

------
gok
A shrewd move by Airbus. It's likely they could have gotten the EU to enact a
large tariff against the CSeries in Europe too, but instead they're getting a
737 MAX 7 competitor for free and getting to avoid political fallout in the
process.

------
slavik81
This is a clever resolution to a dispute that was going to hurt everyone
involved. There was quite a scary trade war brewing.

~~~
simlevesque
What makes you think this is a resolution ? I've followed this story closely
and I think it's far from the end of the dispute.

~~~
slavik81
Just misplaced optimism. I'm a little less hopeful now, having seen Boeing's
response.

------
sho
Boeing is playing an extremely dangerous game here and they just keep on
doubling down. They have an awful lot to lose if other countries, especially
the EU, start to think they've crossed the line.

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](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.

------
drzaiusapelord
This is fairly predictable. With a hostile Trump administration towards
Canada, we're losing influence with Canadians so they will continue to cozy up
with Europe.

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.

~~~
rpiguy
It’s still a win for Boeing and Trump. Bombardiers plans to enlarge the CS
series to compete with the 737 will not happen as Airbus already has the Neo.
The threat of a new entrant is gone, jobs move out of Canada to the airbus
plant in the US, and the CS stays at a size below the prime markets Boeing and
Airbus compete in. While I am sure Boeing would rather have the program killed
entirely this still works out very well for them.

~~~
wahern
The A319neo is as good as dead. According to
[https://www.ft.com/content/201bf186-b350-11e7-a398-73d59db9e...](https://www.ft.com/content/201bf186-b350-11e7-a398-73d59db9e399)
, the A319neo hasn't had a sale in over 4 years. Airbus previously passed on
this Bombardier deal several years ago because of the market segment conflict
with the A319. Given there have been zero sales in the interim, I think it's a
safe assumption that Airbus has decided to throw in the towel on the A319 and
embrace the C-Series. Not just for the product but also for the strategic
multinational relationships. Maximizing those relationships requires
committing to the C-Series. The deal doesn't make sense unless Airbus is all-
in.

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.

~~~
rpiguy
The current C series does not really compete with the 737MAX for most routes,
that is one of the absurd things about Boeing’s trade dispute. Boeing does not
have a 737MAX small enough to overlap the CS is a 717compwtitor which they
don’t make anymore anyway. It was all about what could be, not really about
the CS as it is available today.

~~~
wahern
According to Wikipedia the CS300 has the same seating capacity as the 737MAX
7. The CS300 has a shorter range--3,300 nmi vs 3,825 nmi. OTOH, I imagine it's
a lighter plane and much more fuel efficient.

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?

~~~
rpiguy
You are right the high end of the CS300 competes with the low end of the 737.
I was thinking of the actual trade dispute Boeing filed which was over the
sale of CS100 aircraft to Delta, which actually does not compete with the 737.

------
bookbinder
For a split second I read "Airbus" as AirBnB and I was like "whaaaaaat?"

~~~
joelrunyon
I read it this way too. Seems my brain is working on auto-complete...

~~~
swasheck
damn you, autocorrect!!

