Ukraine Snake Island Flag - Buy it Here!


C-Series - Boeing

The Boeing Company charged in 2017 that Bombardier made a conscious decision to dump the C series in the U.S. market. Having previously manufactured only regional jets, Bombardier designed the C series for the 100 to 150 seat large civil aircraft market and explicitly targeted Boeing's 737-700 and Airbus' A319. But Bombardier failed for over a decade to gain real traction offering the C series in the U.S. market at real market prices. This is an almost $1 billion a year industry in the US alone, this market. It's a $4 billion market globally.

Boeing Statement on International Trade Commission Vote, January 26, 2018 "We are disappointed that the International Trade Commission did not recognize the harm that Boeing has suffered from the billions of dollars in illegal government subsidies that the Department of Commerce found Bombardier received and used to dump aircraft in the U.S. small single-aisle airplane market. Those violations have harmed the U.S. aerospace industry, and we are feeling the effects of those unfair business practices in the market every day.... Boeing remains confident in the facts of our case and will continue to document any harm to Boeing and our extensive U.S. supply chain that results from illegal subsidies and dumped pricing. We will not stand by as Bombardier’s illegal business practices continue to harm American workers and the aerospace industry they support."

From 2005, when Bombardier began offering the C series or 2008 when it actually launched the program, Bombardier had not been able to make a sale to a marqee US airline. By October 2015, just 18 months ago, Bombardier was, by its own admission, on the brink of bankruptcy because of this market failure. In that same month, rather than suffer the normal consequences of commercial failure, Bombardier was bailed out by Quebec, which committed $2.5 billion in equity infusion. It saved the C series program.

After receiving $2.5 billion in equity from Quebec to augment the one-half billion dollars in risk free launch it had already received, Bombardier began to dump its product into the US market. If Boeing cannot secure additional orders for the MAX 7, or is forced to sell at depressed prices, the program will not succeed and Boeing will be eliminated from the 100 to 150 seat market. This strategy is not new. It is the strategy Airbus used to force Lockheed and McDonnell Douglas from the market.

The CS 100, the only product involved in the US sales about which Boeing complains, seats about 30 fewer passengers than the 737 MAX 7. The CS300 is very close in seat count and range capabilities to Boeing's 73700 and Max7 and importantly the price for both the C-series models affect Boeing prices. Boeing had decades of headstart and plenty of opportunity to produce aircraft in the seat range as it did until 2006, but chose instead to exit the 100 seat market space. In 2016 Bombardier sold 75 to 125 planes for less than 20 million dollars each. That's millions less than it costs to build them and millions less than it sold the C-series for in their home market.

Loren Thompson wrote : "Bombardier was facing bankruptcy in 2015 due to chronic mismanagement. To avert the collapse of Canada’s biggest aerospace enterprise, local governments stepped in with infusions of cash aimed at keeping the C Series and other programs on track. That plan prevented thousands of aerospace jobs from disappearing in Canada, but only because the C Series was expected to take market share from Boeing. In other words, Ottawa and Quebec’s provincial government aimed to save Canadian jobs by destroying American jobs. And if their plan succeeded, they would undermine the most important franchise Boeing has, the 737 jetliner.

"When Boeing had to cut the list price of its 737s by 70% to beat a competing offer from Bombardier in the United Airlines competition last year, it knew it had a problem. And when Bombardier then offered the C Series in the Delta Air Lines competition for over $10 million below the cost of production, Boeing decided it had to act."

Airline consolidation in recent years means that there are only a few large U.S. airlines left. This diminishes manufacturer's negotiating power, meaning that Boeing has even less power to resist low-price competition than it did a few years ago. This is a high-risk industry burdened by extremely large upfront R&D and tooling and high manufacturing costs, particularly in the late years of development and in the early years of production.

Airlines and leasing companies are sophisticated players. The industry is relatively small and the results of sales campaigns are often well-publicized. These characteristics of the industry facilitate price discovery. Public information indicates that the C-series is priced far below competing products, and below even its own cost of production.

Sometimes manufacturers offer discounts early in the life-cycle of an airplane, a phenomenon known as launch pricing. The launch initiates the design and development phase of an aircraft program years before the first delivery. Launch prices are lower to compensate a customer for taking a risk by buying an unproven aircraft that is still not fully designed, not tested, not certified, and whose date of delivery is uncertain.

Aircraft manufacturers depend on orders as an indicator of viability of their new aircraft. Orders represent a proof of concept, signaling to the market that a model has staying power, and therefore a customer's investment in the aircraft will hold value over time. In addition, orders generate substantial advanced payments long before delivery. Bombardier believes it is "well positioned to capture 50 percent of the U.S. -- of the 100 to 150 seat market." This 50 percent share target implies that Boeing must battle its other subsidized competitor Airbus for a rump of what the domestic industry used to have.

On September 26, 2017 U.S. Secretary of Commerce Wilbur Ross announced the affirmative preliminary determination in the countervailing duty (CVD) investigation of 100- to 150-seat large civil aircraft from Canada, finding that exporters of this merchandise received countervailable subsidies of 219.63 percent. The Commerce Department will instruct U.S. Customs and Border Protection to collect cash deposits from importers of 100- to 150-seat large civil aircraft based on these preliminary rates.

Join the mailing list

Page last modified: 24-03-2018 18:39:31 ZULU