Yesterday, a stunning development occurred in the commercial aircraft sector, one that will likely have added geo-political trade and industry supply chains implications down the road.
In late September, Supply Chain Matters updated readers on the implications of a U.S. trade ruling involving Bombardier’s Aerospace group. The United States Commerce Department ruled in favor of a direct compliant from Boeing alleging that Bombardier’s $5.5 billion sale of 75 regional C-Series jets to Delta Airlines had benefited from unfair subsidies provided by the governments of Canada and the United Kingdom, even though Boeing had no recognized direct competitive offering in the U.S. market. As a result, U.S. trade officials indicated they plan to institute a 220 percent tariff to the cost of new C-Series aircraft sold to U.S. customers. A final decision on such a duty is not expected until February of next year.
Yesterday, in what some in the industry are terming the “deal of the century,” Airbus has agreed to acquire a majority stake in in the C-Series program, in-essence, throwing both a lifeline to Bombardier as well as adding its far larger procurement and supply chain resources to the program. The Wall Street Journal characterized the development as:
“what could be the biggest shake-up of the commercial jetliner business in 30 years, challenging a crippling ruling pushed by Boeing and the U.S. despite sluggish sales of a Canadian-made aircraft.”
According to a published report from Aviation Week as well as other business media sources, the deal calls for Airbus to take a 50.01 percent interest in the C Series Aircraft Limited Partnership (CSALP) that was formed in 2015 when the Quebec provincial government invested added funds into the program. No money will change hands on completion of this deal and reportedly, no additional debt will be assumed by CSALP. Airbus will assist in commercial agreements covering sales and marketing of the C-Series, as well as provide its added influence and market influence in procurement management and supply chain support. Bombardier will continue its existing C-Series investment plans over the next two years.
Of more significance, Airbus is offering to make its existing Mobile Alabama A320 aircraft assembly facility available for assembly of completed C-Series aircraft if the ITC were to rule that material damage was done to Boeing has alleged. The Mobile option is a means to work around the proposed 220 percent duty that the U.S. government is currently proposing and will likely allow Bombardier an option to deliver Delta Airlines its 75 C-Series aircraft order from a U.S. based assembly facility.
Both the CEO of Bombardier and Airbus were quick to declare to media that the U.S. trade dispute did not drive this new partnership, acknowledging that talks began in August. Boeing reportedly filed its trade dispute with the International Trade Commission in April.
Boeing issued a statement yesterday calling the deal questionable and an effort to skirt the recent findings of the trade commission. The President of Bombardier Aerostructures and Engineering Services located in Northern Ireland hailed the agreement as an opportunity to build on an existing relationship with Airbus, and a positive boost to Northern Ireland and the UK supply chain.
At initial glance, the obvious benefactors of this stunning new deal are both Airbus and Bombardier’s C-Series production and supply chain ecosystem. The program gains the influence, creditability and added supply chain and customer support resources of one of the two top industry influencers. That is likely to boost the creditability of the C-Series for added deals down the road. Depending on the market uptake, Airbus also stands to gain a revenue share in a growing market segment for smaller regional jets as well as the likely potential to directly sell the aircraft in its product lineup.
According to the published report from the WSJ, many people familiar with this newly announced deal attributed Boeing’s punitive actions as spurring the new Airbus talks.
By taken its overt trade action, Boeing has possibly squandered the opportunity that Airbus executed, the opportunity to be able to directly market and offer an attractive, fuel-efficient aircraft offering for regional airline customers. Instead, Boeing likely has a soured residual relationship with both Canadian and U.K. government officials which could spill over into future government or civilian aircraft procurement opportunities.
There is also the possibility that this stunning announcement will have a spillover effect to ongoing NAFTA re-negotiation talks, especially tenets dealing with the existing Chapter 19 trade dispute resolution, which U.S. negotiations are hoping to change. Depending on the U.S. government response, there could also be spillover effects to ongoing TPP trade talks where both China and the Eurozone are positioning to be more dominant trade influencers across broader Asian counties.
This week’s announced deal between Airbus and Bombardier could well be the prelude to a global response to “Make America Great” trade policies, namely bi-lateral actions that defend industry market segments and existing global supply chain ecosystems.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.