The Gloves Are Off - Bombardier Versus Boeing
Boeing’s dispute with rival Bombardier over the Canadian company’s government subsidy enabling it to sell its C Series passenger aircraft in the U.S. at below market prices is placing Canada’s order (estimated to be worth around $2 billion) of 18 Boeing F/A-18 Super Hornet fighter jets in jeopardy. A precursor to the dispute is Bombardier’s Delta Air Lines deal (estimated at $5.6 billion) for 75 C Series aircraft, with aggressive pricing strategies and discounts to seal the deal.
Boeing petitioned the U.S. Department of Commerce and the U.S. International Trade Commission to investigate the matter, which was met with opposition from the Canadian government adding tension to trade relations. A preliminary determination is expected by June 12. Canadian Foreign Affairs Minister, Chrystia Freeland, stated that Boeing’s petition is “clearly aimed at blocking Bombardier’s new aircraft, the C Series aircraft, from entering the US market.” Freeland added that Ottawa is now “reviewing current military procurement that relates to Boeing”.
The C Series is the first product from Bombardier to compete against the likes of Boeing and Airbus. Bombardier’s commercial aircraft division has had a tough time recovering funds invested in developing the aircraft. However, in 2016 Bombardier closed the $1 billion investment by the Government of Québec (through Investissement Québec) in return for a 49.5% equity stake in the recently created limited partnership – the C Series Aircraft Limited Partnership (CSALP). Further, according to the Financial Times, the Commercial Aircraft Corporation of China (COMAC) held discussions to either buy a stake in Bombardier’s commercial aircraft division or the C Series programme.
- On June 29, 2016, Bombardier delivered its first CS100 aircraft to Swiss International Air Lines (SWISS), with commercial service commencing on July 15, 2016.
- On November 28, 2016, the first CS300 aircraft was delivered to Air Baltic Corporation AS (airBaltic), with commercial service commencing on December 14, 2016.
- A total of 129 firm orders and 80 options were added to the backlog from Delta Air Lines, Air Canada, airBaltic, and Air Tanzania (a combined value of $10.1 billion at list prices).
With the Delta Air Lines order, Bombardier has not only found a conduit to the U.S. market, but also landed a huge deal, making the aircraft far more desirable to prospective buyers. Boeing will have to compensate for lost fighter jet sales if Canada drops the deal in retaliation to their claim, but one thing is certain, whatever the outcome Bombardier has launched into the lucrative U.S. market with the Delta Air Lines deal and unsettled industry rivals who will continue to compete for future sales.
Written by Sylvia Caravotas (Satovarac Consulting) for OIDA