By Kate Davis S o what began as a trade dispute between Bombar- dier and Boeing Co, where the US aerospace giant accused its Canadian rival of selling the C Series to Delta Air Lines Inc. at “absurdly low prices,” has sparked a new joint venture partnership between the Canadian aerospace company and Airbus of France after the U.S. Commerce Department sided with Boeing in the dispute, imposing a preliminary tariff of 300 percent on the Bombar- dier jets coming into the US. The deal between Bombardier and Airbus, gives Airbus control with a 50.01 percent share of the new European-Ca- nadian joint venture that will produce the cutting-edge C series jet in Airbus’s Alabama plant securing a “Made in U.S.” label for Bombardier. The deal itself has Airbus agreeing to contribute its commercial and manufacturing expertise in a bid to cut production costs of the C Series and secure thousands of new orders, rather than pay cash for its 50.01 percent share. One of Airbus’s first priorities will be using its marketing muscle to renegotiate some of Bom- bardier’s current contracts with major suppliers in order to cut production costs. So was this a good deal? I guess time will tell as Bombar- dier has invested more than $6 billion to develop the jet over the past decade but the additional assembly line in Alabama Airbus plant would cost only “a few hundred million dollars,” to complete and the new facility would
be crucial to Airbus’s strategy for increasing U.S. sales of the Canadian plane while avoiding stiff trade penalties imposed by the Trump administration. Bombardier projects that C series passenger jets carrying 100 to 150 passengers will generate 6,000 orders over the next 20 years with the U.S. marketing representing 30 percent of those orders jus- tifying both the additional investment in the plant and the new joint venture itself. “Airbus brings credibility and volume and in exchange, sup- pliers are ready to make an effort on price,” Airbus Chief Operating Officer, Fabrice Bregier said, “We have to get to this win-win logic with a certain number of big partners of Bombardier and the C Series, and I think we will get there.” While Bregier declined to say how much Airbus plans to squeeze in expenses, he said a reduced selling price would help Airbus capture at least 2,000 orders in the next two decades. The deal between Bombardier and Airbus gives the European planemaker the right to buy out Bombardier and the Quebec government seven-and- a-half years after the transaction closes however, Airbus says at this time it isn’t planning to do so but to remain great partners.
Boeing has said duties will still be levied, so something tells us that this is not the end of this story.
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SPOTLIGHT ON BUSINESS MAGAZINE • OCTOBER 2017
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