With news of Airbus creating a JV with Bombardier, a seismic industry event has occurred.  Recall that Bombardier has previously tried (2015) to enjoin Airbus in the program, only to be rebuffed.  With the impact still creating reverberations around the industry, what do we see as possible impact points?

Airbus

  • Secures a product line from 100 seats to 550
  • Alleviates the A319neo pressure, but bears down on MAX7 and 8 considerably
  • Looks like the savior and is admired by everyone except Boeing – protecting jobs in Canada and creating more in Alabama

Airlines

  • Airlines appreciate Airbus ensuring they have an option now under 150 seats that is state of the art (until the E2 arrives, providing more choice)
  • Appreciate that the CS will now have protection from Airbus rather than market opposition
  • With Airbus providing product approval, many more airlines will consider the CS now as an option
  • This means airlines ranging from Air Asia to United and includes all the Airbus influenced airlines in the EU

Boeing

  • Its strategy against Bombardier has backfired
  • The MAX7 is a dead man walking
  • The MAX8 is now threatened for real, potentially jeopardizing the MAX program
  • NMA is now of utmost urgency as Boeing is threatened across the board
  • It’s US target customers are much more likely to buy CS now (United quite likely, American maybe and more for Delta and yes, even Southwest will give the CS another look along with JetBlue and Spirit)
  • Boeing likely loses goodwill from several airlines (transferred to Airbus/Bombardier) and certainly has lost Delta with whom it has been at loggerheads over the ME3 and Ex-Im Bank
  • Probably loses Canadian government business, and now perhaps UK and EU business as well
  • Almost certainly Boeing’s fear of Bombardier’s pricing with the Delta deal and the attempt at United could now grow far worse
  • What would it have cost Boeing to do what Airbus has done and avoided all the negatives it has faced since the start of the DoC complaint?
  • In summary, it doesn’t look like there is any good that comes out of this for Boeing as the law of unintended consequences plays out

Bombardier

  • A sigh of relief in Montreal heard around the world
  • The CS is now formally endorsed by a former vigorous foe – John Leahy’s team now must sell the aircraft they once impugned
  • Bombardier is now “bankable” by the commercial banking sector and aircraft lessors
  • A lot of risk comes off the table for key program supporters in Canadian federal and provincial government. Their investment and support proved to be the right move
  • Bombardier’s future in commercial aerospace is less clear. If Airbus takes over the CS program, as it may, the Q400 and CRJ programs require attention and Airbus is unlikely to have any interest.  Bombardier’s bizjet business is still strong though
  • The next domino to fall here could be the company’s railway assets

China

  • China could have bought the CS program and the rest of the IP associated with it for a song. Now COMAC and AVIC will not benefit, an expensive mistake
  • If Airbus adds a CS FAL in Tianjin as it plans at Mobile, then this would secure CS sales in Asia and, crucially, in China. China should push for this is a way to recover its lost opportunity
  • China is the most likely source to now move on Bombardier’s railway assets. They will surely not miss a second opportunity, would they? Bombardier needs cash and China has lots of it.  Now is the time to strike

Embraer

  • They are likely as shocked as the rest of us. This turns an equal competitor into a giant
  • Embraer now must look to Boeing to deepen their relationship beyond the KC-390 and alternative fuel research
  • Boeing needs to match Airbus and Bombardier. This means either developing a new line below 150 seats because the MAX7 won’t do it.  But that costs billions which Boeing needs for 777X and NMA.  It’s cheaper, by far, to tie up with Embraer
  • Fortunately for Embraer, the “need” is higher on the side of Boeing than it is on the side of Embraer. This might give Embraer more wiggle room in negotiations
  • That said, Embraer will not want to prolong any courtship. The market won’t wait and CS orders are going to, in all likelihood, accelerate

UTC

  • The bad news? Airbus is going to drive down engine prices
  • The good news? The GTF will be secure on the CS and the E2, powering virtually the entire sub-150 seat market which could be between 4,500 (our estimate) to 6,000 (Bombardier’s estimate). (BTW expect Airbus add the sub-150 seat segment in detail to its next forecast)
  • UTC’s role as the key vendor on the CS is now protected. Getting closer to Airbus does not hurt either. UTC wins here and helps it get stronger when facing Boeing
  • The revised GTF under development could be favored for the A321LR as well as all single-aisle Airbus aircraft

EU/UK

  • Belfast looks great now as a potential site for Airbus work as well as for Bombardier
  • Especially important, with Brexit, where one might have thought less work at the Airbus facility in Wales
  • Airbus gets a major asset here. The UK gets to claim a victory for Wales and Belfast
  • PM May can take credit as the cards fell in her favor. She now can come down harder on Boeing with less fear of repercussions.  Her Belfast allies are secure and so is she.  PM May can now also tweak The Donald to come onside because she saved British jobs and he can now claim to have saved jobs in Alabama (if not Seattle). Note Alabama is Republican and Washington State is Democrat
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