… Delta says Bombardier CSeries delivery schedule unclear
… Lufthansa says CSeries’ future more sustainable after Airbus deal, expects to benefit from it
… Air Baltic says hopes Bombardier-Airbus deal does not affect pricing
… French Government, UK Business Minister welcome deal
… Boeing says Bombardier CSeries jets may face hefty duties despite Airbus deal
… Meanwhile, Airbus shares rally after company’s Bombardier CSeries deal
PARIS (Reuters) – Airbus shares rose on Tuesday after the European planemaker and aerospace group agreed to buy a majority stake in Bombardier’s CSeries jetliner program.
Airbus shares were up 2.4 percent at 78.92 euros in early trading, close to a record high of 82.25 euros reached earlier this month.
The shares, up by around 25 percent this year, led gainers on France’s benchmark CAC-40 index which was up 0.2 percent.
Meanwhile….
In Atlanta, Delta Air Lines said on Tuesday it was unclear when the Bombardier CSeries jets would be delivered, as a proposed U.S. government tariff on the planes complicates the future of the Canadian-made aircraft.
Speaking to reporters in Atlanta, Chief Operating Officer Gil West said the delivery schedule of the plane was still “something of a question mark.”
On Monday, Airbus SE agreed to take a majority stake in CSeries jetliner
FRANKFURT – The future of Bombardier’s CSeries program is more secure after Airbus took a majority stake, customer Lufthansa said on Tuesday.
“It’s a great aircraft, a great program and it deserves a sustainable future. After last night’s decision, that future is much more sustainable and that’s good for aviation, the environment, surely good for Bombardier and Airbus and the Lufthansa Group,” Lufthansa Chief Executive Carsten Spohr said on Tuesday at an event hosted by aviation group A4E.
Lufthansa will benefit from future cooperation between airplane makers Airbus and Bombardier as it is a major customer of both companies, the German airline’s chief executive Carsten Spohr said.
Airbus has agreed to buy a majority stake in Bombardier’s CSeries jetliner program, giving a powerful boost to the Canadian plane and train maker in its costly trade dispute with Boeing Co.
“The cooperation of strong partners and the joint development of technology are of enormous importance in the aircraft sector,” Spohr said on the sidelines of an Airlines4Europe event in Brussels.
“As a major customer of Airbus and launch customer and operator of the Bombardier CSeries, Lufthansa will benefit from the future cooperation of two companies that are bundling their innovation and competence,” he said.
Lufthansa unit Swiss was the launch operator of the CSeries and has 30 of the planes on order, including 20 of the larger variant, the CS300.
AIR BALTIC – Latvian-based Air Baltic says a deal by Airbus to invest in Bombardier is positive news for it as a customer of the Canadian company’s CSeries jet but hopes it won’t affect the pricing of a planned new order.
Air Baltic is currently flying the larger variant of the CSeries, the CS300, having ordered 20 of them.
“We took the decision in 2012 not to take the (Airbus) A319, but to go for the CS300 and now Airbus confirmed that it was the right decision,” CEO Martin Gauss told Reuters on the sidelines of an A4E event in Brussels.
“It means we have a stronger partner in the back now, so for us, it’s very positive.”
Air Baltic is also in talks for a further 14 CS300 jets plus options to replace its turboprop planes, and Gauss said he hoped the Airbus deal would not alter the purchase price, with talks already at an advanced stage.
“Our potential order is there and I hope we don’t have to completely change the evaluation of whether it is a good step because we are replacing our turboprops with it. I hope they respect what we have done so far,” Gauss said.
Midnight in Toulouse: How CSeries deal shook status quo
Two years ago, Airbus Chief Executive Tom Enders halted negotiations to buy Canada’s CSeries program at midnight after the talks with Bombardier leaked to Reuters. On Tuesday, he performed a U-turn by backing a similar deal after all – again at dead of night.
The nocturnal gymnastics by Europe’s largest aerospace group stunned the aircraft industry which had been riveted for weeks by a trade dispute between Boeing and Bombardier that threatened to hit the CSeries with large U.S. import fees.
Now, the 110-130-seat jet will be built for U.S. airlines at Airbus’s Alabama assembly plant, circumventing any import penalties in a move that apparently caught Boeing off guard.
Analysts say that potentially turns the CSeries from an attack on U.S. jobs, as portrayed in Boeing’s complaint, to a job creator in a key Republican state, though Boeing termed the move a “questionable deal” between two of its subsidized competitors.
The deal also signals the end of Airbus efforts to promote the A319, its smallest jet which has not posted a sale in years.
“The stunning Airbus-Bombardier partnership for the CSeries program guarantees the future of the new airplane, kills off the A319 and thrusts a big stick up Boeing’s tailpipe,” Leeham Co analyst Scott Hamilton wrote.
Strategically, however, the move extends well beyond the noise of Boeing’s spat with Bombardier and could trigger a riposte from other planemakers, including Boeing itself.
Commercial aerospace has four main powers dominated by Airbus and Boeing, which share the market above 150 seats.
Brazil’s Embraer and Canada’s Bombardier compete between 100 and 150 seats as well as in the market for smaller regional jets.
But China and Russia lead a field of new entrants vying to break into the $125 billion a year commercial market, along with smaller regional players such as Japan.
BOEING-EMBRAER ALLIANCE?
Tuesday’s deal starts to rearrange the deck in a move that many have been expecting since former Airbus head Louis Gallois warned six years ago that the market was getting too crowded.
In particular, it could drive Boeing closer to Embraer, with which it already cooperates. Embraer’s E2 jet is one of the main potential losers from the CSeries deal.
“The world has two top-tier airframers, and two second-tier airframers,” said Teal Group analyst Richard Aboulafia.
“Airbus and Bombardier are now allies. This greatly increases the likelihood of a stronger Boeing-Embraer alliance as a response.”
Such a move has long been contemplated in private.
The CSeries benefits from a new type of efficient engine. Its launch in 2008 eventually prompted Airbus to put the same generation of engine on its own A320 to protect its main profit source.
That, in turn, forced Boeing to dump plans for an all-new single-aisle plane in 2011 and opt for a makeover of its best-selling 737 with similar engines, to be known as 737 MAX.
But sitting in Boeing’s filing cabinets are designs for an all-new jet that would have involved intense collaboration with Embraer, according to two people familiar with the project. A template for closer co-operation therefore already exists.
Boeing and Embraer declined to comment.
The two companies already work on projects including runway safety and alternative jet fuels. Their partnership has intensified in recent years to include Boeing’s commitment to joint sales and support of Embraer’s KC-390 military aircraft.
The Airbus-Bombardier deal also marks a pause in strategic advances made by China, widely seen as the most serious future competitor to Airbus and Boeing.
Debt-laden Bombardier had been in talks with China as it waited for Airbus to come around to the CSeries.
“China has missed out on a huge opportunity to advance its aims by not getting the CSeries,” an industry strategist said.
PRODUCT STRATEGY
The deal also has potentially far-reaching consequences for product strategy and technology at Airbus and Boeing.
A person close to Bombardier said Airbus would aim to pressure the key Boeing 737 MAX 8 model by squeezing it from below with the CSeries and from above with the popular A321neo. Some critics say it could also develop a larger CSeries.
But critics say airlines don’t want such a patchwork of products. The deal clashes with one of the core philosophies in the Airbus brochure to date – a compatible family of aircraft where pilots and maintenance staff can be redeployed easily.
Airbus will also get its hands on promising technology.
Workers in Belfast, whose jobs have been at the center of a political storm over the Boeing-Bombardier dispute, are using innovative wing production techniques that may now be deployed by Airbus for future jets.
That could increase tensions at the World Trade Organisation where Boeing has battled with Airbus for years over government loans. Bombardier received such UK funding in Belfast, meaning recent trade friction may shift to the larger stage at the WTO.
French government welcomes Airbus’ deal on Bombardier CSeries stake
PARIS (Reuters) – The French government, which owns an 11 percent stake in Airbus, welcomes the airplane maker’s deal for a majority stake in Bombardier’s CSeries jet program, Finance Minister Bruno Le Maire said on Tuesday.
“I welcome this news, everything that makes Airbus stronger, everything that makes the European aircraft manufacturing industry stronger goes in the right direction,” Le Maire told journalists, after Airbus agreed on Monday to buy a majority stake in the Bombardier CSeries jetliner program.
UK business minister welcomes Airbus stake in Bombardier’s C Series
LONDON (Reuters) – British Business Secretary Greg Clark said on Tuesday he welcomed the deal for Airbus to buy a majority stake in Bombardier’s C Series jetliner program, saying Britain would work closely with the firms to protect its interests.
“There is some way to go before the deal is completed and our number one priority throughout will be the workforce in Northern Ireland,” Clark said in a statement, adding Britain would also continue to work with Canada to end Bombardier’s costly trade dispute with Boeing Co.
… Boeing says Bombardier CSeries jets may face hefty duties despite Airbus deal
MONTREAL/TOULOUSE, France (Reuters) – Boeing Co said on Tuesday that Bombardier Inc’s CSeries jets could still be hit with high U.S. import duties, even if they are assembled in Alabama through an industry-changing deal with Airbus.
The deal announced on Monday gives Airbus a majority stake in Bombardier’s troubled CSeries jetliner program, securing the plane’s future and giving the Canadian firm a possible way out of a damaging trade dispute with Boeing, in which the U.S. Commerce Department has threatened to impose a 300 percent import duties.
Boeing said that the announced deal has no effect on the pending U.S. Department of Commerce proceedings. “Any duties finally levied against the C-Series… will have to be paid on any imported C-Series airplane or part, or it will not be permitted into the country,” Michael Luttig, Boeing’s general counsel, said in a statement.
Investors cheered the winners of the deal that is set to shake up the $125 billion a year market for large jets. Bombardier shares jumped 15.7 percent on Tuesday, while shares in Toulouse, France-based Airbus rose 4.8 percent.
The transaction would give Airbus a 50.01 percent stake in an entity recently carved out of Bombardier to produce and market the CSeries, four years after it first flew with a goal to enter the large jets market.
But in a move emblematic of the huge risks of aerospace competition, Bombardier will get just one dollar for the majority stake in exchange for Airbus’s purchasing and marketing power to support an aircraft that has won fans for its fuel efficiency but had not secured a new order in 18 months for the 110-130 seat plane due to doubts over its future.
Bombardier’s strategy of performing final assembly in Alabama might allow the CSeries to avoid duties because the trade case targets partially and fully-assembled aircraft, said U.S. international trade lawyer William Perry.
Bombardier and Airbus could argue they are importing parts, like the wing from Northern Ireland, to be assembled in the United States.
“That may be the loophole Bombardier is hoping to use,” he said by phone.
‘ONE DOLLAR DEAL’
In reality, the terms of the deal mean Bombardier could pay Airbus to take over by agreeing to underwrite $700 million of risks related to cost overruns in coming years.
“It’s an unexpected move by Airbus but indicates they see good market potential for the CSeries. Neither they nor Boeing currently offer an aircraft in the regional jet market,” said aerospace consultant John Strickland of JLS Consulting.
The deal is similar to one that Airbus walked away from in 2015 when it decided the investment in a plane that had not yet entered service was too risky – with one major difference: that some of the jets will be produced in the United States.
That could change the power balance in Bombardier’s costly trade dispute with Boeing, though it is not the main reason why the two former rivals have come together, executives said.
“Assembly in the U.S. can resolve the (tariff) issue because it then becomes a domestic product,” Bombardier’s chief executive, Alain Bellemare, told reporters at Airbus’s headquarters in Toulouse.
Airbus CEO Tom Enders hailed the tie-up as “a win for Canada … a win for the UK,” referring to Bombardier’s wing-making factory in Northern Ireland whose future had been threatened by the distant trade war.
He said it would also create new U.S. jobs.
The deal appeared to catch Boeing off guard. Locked in a separate 13-year trade dispute with Airbus, Boeing on Monday called it a “questionable deal” between two of its subsidized competitors.
CANADIAN APPROVAL
Bellemare said he hoped the deal would be approved within six to 12 months. Canadian Innovation Minister Navdeep Bains, who must officially decide whether to green-light the deal, said it looked like “Bombardier’s new proposed partnership … would help position the CSeries for success”.
Bombardier said the partnership should more than double the value of the CSeries program.
While it will lose control of a project developed at a cost of $6 billion, the deal gives the CSeries improved economies of scale and a better sales network.
For Airbus, the deal strengthens the bottom end of its narrowbody portfolio after poor sales of its own A319 model and expands its global footprint, potentially opening up further deals in other sectors in Canada.
Tony Webber, a former chief economist at Qantas, said the CSeries could complement Airbus’s existing single-aisle models.
Bellemare said the deal was expected to close in the second half of 2018.
“We’re doing this deal here not because of this Boeing petition. We are doing this deal because it is the right strategic move for Bombardier,” he said, referring to Boeing’s complaint that the Canadian firm received illegal subsidies and dumped CSeries planes at “absurdly low” prices.
NO JOB LOSSES
Bombardier said the deal would not result in job losses and would keep the head office in Montreal. Unions said the deal could benefit workers.
The Boeing-Bombardier dispute has snowballed into a bigger multilateral trade dispute, with British Prime Minister Theresa May asking U.S. President Donald Trump to intervene to save British jobs.
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Bombardier is the largest manufacturing employer in Northern Ireland and May’s Conservatives rely on the support of the small Northern Irish Democratic Unionist Party (DUP) party for their majority in parliament.
Business Secretary Greg Clark said Britain would work closely with the planemakers, while the DUP said the agreement was “incredibly significant news” for Belfast.
Talks for the deal between Airbus and Bombardier first started over dinner at the end of August.
Enders said the deal was different from an earlier round of talks in 2015 when he abruptly ordered an end to negotiations. He said the CSeries’ had since been certified, entered service and was performing well.
Some analysts said the deal could drive Boeing closer together with Brazil’s Embraer, with which it already cooperates.
Bombardier is in the middle of a five-year turnaround plan after considering bankruptcy because of a cash-crunch as it developed multiple planes simultaneously, including the CSeries.
With reports from Reuters global bureau
