Why are Airbus and Boeing Afraid of Bombardier?

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Both Airbus and Boeing are being aggressive to preempt Bombardier from winning key customers in the commercial aircraft market. As we noted in our C Series report in 2010, John Leahy at Airbus stated that Airbus wouldn’t make the same mistake that Boeing did when Airbus entered the market and that would be aggressive against the C Series. It appears that Boeing is taking the same path.

Boeing appears to have preempted Bombardier from a C Series order at United, and according to a article from Jon Ostrower at the Wall Street Journal. “Ray Conner, Boeing Commercial Airplanes chief executive, in an internal presentation on Feb. 10, said the first January deal with United was designed to block Bombardier from gaining a foothold with one of its most loyal customers, according to two people who heard his remarks.”

It appears that the two big players in the market afraid of the small competitor from Canada gaining a foothold. The question is why? There are a number of reasons:

Capabilities

The C Series is not and was not designed as a regional jet, but as a flexible small trunk-liner with full trans-continental range. This means, unlike regional jets that offered limited range, the C Series can compete with Airbus and Boeing across all narrow-body routes, including smaller routes for which “right sized” aircraft are needed. In addition, the interior, with fewer and wider middle seats, will be viewed as more comfortable by passengers, as it incorporates the latest in cabin design technology.

Efficiency

The C Series is a much more modern and efficient aircraft than either the A320neo or 737MAX families. While Airbus and Boeing have dramatically updated their A320 and 737 platforms, these program still date from 1989 and 1967, and have the same fuselage diameter and basic layout as their original designs. Think of a new car, with all of the bells and whistles, being built on platform designed in the 1960s or 1980 versus one designed in the 2010s. There’s no comparison. While with aircraft this isn’t as dramatic a difference as with automobile platforms, there are differences in technology.

The C Series has new materials, improved aerodynamics, and was optimized for new technology engines, rather than retrofitting them into an existing platform that in Boeing’s case, was designed when engines were still cigar shaped. Even with the same engine technology, there is no way the Airbus or Boeing could be as efficient as a C Series.

While lower fuel prices today reduce the economic differential from lower fuel burn, the C Series remains better in operating costs than its similarly sized competitors, the A319neo and 737MAX7, and about equal to their larger A320neo and 737MAX8 models. From its on-board monitoring systems that reduce maintenance costs to its lighter weight Aluminum-Lithium fuselage and advanced carbon fiber wings, it is simply a newer and better airplane.

Bombardier are the Masters of Stretch

A real concern in giving Bombardier a foothold is that it will stretch the C Series with larger models that compete directly with Airbus and Boeing’s larger models. Bombardier has reserved trademarks for CS500 and CS700, providing at least the possibility of future stretched models of the aircraft. Stretched models would put C Series in direct competition with the older designs for their bread and butter aircraft, and could negatively impact demand.

Return on neo and MAX Investment

The A320neo decision at Airbus was in part a reaction to the C Series, and closing the gap, since the CS300 has better operating seat-mile economics than the A320ceo, and is quite close to the A320neo because of its weight and fuel burn advantage. Airbus’ decision to be more aggressive against C Series led to Boeing rushing the MAX into development rather than developing an all-new narrow-body aircraft. Each of the two big OEMs has developed a new derivative model and generated 3,000-4,000 orders between them. They do not need to develop an all-new program today, as they need to capture the return on investment from their existing programs, expected to have a 10-12 year production run before the next generation of airplanes is announced.

What has resulted from the big duopoly are no narrow-body aircraft optimized to take advantage of today’s new generation of narrow-body engines, the Pratt & Whitney GTF and the CFM LEAP. Only Bombardier, Irkut, and COMAC will offer designs optimized around these engines, with Bombardier the only viable threat. Boeing’s financial catastrophe with the 787, and Airbus similar saga with the A380 highlight the risks of developing new aircraft. The big duopoly simply cannot afford another new aircraft development, and had to resort to compromise and low cost re-engining programs.

An All New Competitor Wouldn’t Differentiate Itself Today

Engine technology drives aircraft design. The C Series is the first airplane to be optimized for new technology engines, and designed from the ground up with those engines in mind. An all new aircraft from Airbus and Boeing would also be optimized for new technology engines, but wouldn’t likely gain significant competitive advantage over the C Series, since engine technology, systems, and materials technologies are already at the current state of the art.

Boeing and Airbus would look to the heart of their market for optimization, about 170 seats, for a new model. The C Series is optimized for 130 seats, and as a result is a much lighter aircraft, that could still be stretched. Just as today’s “shrink” models, the A318 and 737-600, are smaller models of designs of aircraft optimized for higher seating levels, an all new model from Airbus or Boeing could not easily compete with the CSeries in the 130 seat segment.  It is much easier to stretch than shrink, and Airbus and Boeing have moved customers to larger aircraft.

Airlines would Love a Third and Fourth Competitor in the Narrow-Body Market

While someday COMAC will become a major competitor, China is not yet ready to compete aggressively with Airbus or Boeing. Nor is UAC in Russia, although the Irkut MC-21 is, on paper, a better airplane than either the A320neo or 737MAX give its modern clean sheet design optimized for same the P&W GTF engines used on the A320neo.

But Bombardier and Embraer are here with their new offerings in the 100-130 seat class. The CS100 and CS300, combined with the E2-190 and E2-195, will give Airbus and Boeing a run for their money at the low end of the market between 100-130 seats.

The E2 jets, with four abreast seating, are already quite long aircraft and are therefore unlikely to be stretched. This has taken them off the direct threat radar screen, and Airbus and Boeing seem content to allow Embraer to remain in their market niche. But Bombardier, which can seat 155 in the CS300 in high density, and have an aircraft that can be stretched, is viewed as a threat.

What has been the result so far? For airlines that invited C Series to their competition, the results have been massive price concessions from Airbus and Boeing to keep Bombardier out. A number of campaigns that Bombardier was close to finalizing have been lost at the 11th hour with an offer too good to refuse. Our sources indicate that Easyjet, Vueling, and United have all received incredible pricing on aircraft to keep Bombardier out of the picture.

With deep pockets and highly optimized cost structures due to high production levels, Airbus and Boeing can undercut Bombardier, which must amortize their development costs over a smaller number of aircraft. As a result, it is difficult for Bombardier to match pricing to simply to gain a market foothold and lose money on each aircraft.

But is taking a great deal from Airbus or Boeing counterproductive in the long term for airlines?

Airbus and Boeing would love to see Bombardier fail. By taking the low priced order from Airbus or Boeing, and not the innovative competitor with superior technology, are airlines being myopic?

The Bottom Line

Bombardier has built a great airplane that can beat its competition from Airbus and Boeing. They would rather split the market two rather than three ways, and are doing everything they can to stop Bombardier.

Airlines that are taking attractive deals for aircraft not as well suited for their operations maybe are being short-sighted by failing to recognize why those prices are so low, and the reason they are being offered them.

The cream rises to the top, and Bombardier has built a superior aircraft. Airbus and Boeing are fighting a war, and Bombardier isn’t in a strong position to fight back. But the industry and the airlines need Bombardier, in ways they currently do not perceive.

© 2016, Ernest S. Arvai. All rights reserved.

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17 comments on “Why are Airbus and Boeing Afraid of Bombardier?
  1. andreallard says:

    If the last rumour about United buying an other 25 B737-700 are right, then can you explain how come Boeing as sold more 737NG than 737MAX so far in 2016?

    • by sell do you mean actually making money on the deal lol.

    • Le Pi says:

      price 737ng are cheap,old outdated program, cherry pickers are grabbing then up . Max comes at a premium lets say

      both airlines have set the standards on /discount Tuesday to buy, Airlines know this ,they just get cseries to fly to them . tickle cseries balls and get the other 2 airlines A320 and 737 to undersell . hmmm saw a movie once called tucker seems like the same deal

      Once cseries is Flying under Swiss Air the feed back from passengers, is going to let people know there is a better way to fly instead of sardine can planes

      oh yes forgot enviro European and American style system excluded from old planes take a look at flightracker seems 95 % of planes are out dated .. doing more damage to our world then all the cars combined

      really nasty group Airbus and Boeing dirty players ..

      Bombardier built a plane,pilots, the Environment and passengers are going to love the cost is much more, most would prefer to travel with safety , reliability , and comfort for a higher price..

      • steve says:

        Feedback from the passengers will entirely depend on how the airlines configure the seating. The Cs series is no luxury airliner. Unless one fly’s first class, the back of the bus will be the same on all narrow bodies. Also, aside from new engines, wings and some new materials, its still a hollow tube with seats. To make the CS series sound like an all new airliner is just hype.

  2. As I already mentioned, Bombardier engineering the coup would be launching a CS500 and CS700 while the MAX and NEO are the beginning of a 10-year production cycle. What would be great would be expected to have resisted the temptation to start too quickly lengthened these models, Briefly, for waiting so long, actually, Airbus and Boeing can no longer turn back. Result ? Sooner or later Airbus and Boeing will have to invest at least 10 billion each and interludes of NEO and MAX will cost a bunch of money . One can easily imagine the excitement that could cause the offer of 4 models of the CSeries customers .

    • Le Pi says:

      I am sure the Canadian Government will have bombardier develop a peace jet fighter under bombardier for lets say three to 5 billion in cost funding ,not to take away from Boeing and Airbus military research and let us produce our own peace military plane CS501 and CS702 CS902 defence plane to apply to world trade requirements and of course countries that need this peace plane will also be discounted to help the world and mankind.

      We remember the ARROW , let one not repeat ones future

  3. Normand Hamel says:

    Excellent article that offers a very satisfying summary of the situation. What is happening today with Boeing versus Bombardier reminds me of what we witnessed when Airbus introduced the A320neo a few years ago. Again Boeing appears to be in a panic mode and ready to do anything to annihilate the threat presented by the technology and economics of the C Series. Initially Boeing was slow to react, but now that the A320neo is heading towards market domination they will try to prevent Bombardier from moving in and potentially disrupt the balance that is already shifting in Airbus’s favour.

    • BernardP says:

      Bonjour Normand… Long time no read.

      I agree that the article is excellent, especially, when it underlines that it’s in the airlines’ interest to have a third credible player in the narrow body market, but that the rise of this third player won’t happen if everybody only favors short term deals with Boeing and Airbus.

      • Normand Hamel says:

        Whenever the MAX will start to decline, which is inevitable long term, a third player will become a necessity; because before Boeing comes out with a 737 replacement the wait will become unbearable for some airlines. Especially if oil prices start to go up again. And the price tag of the 737 Replacement will likely be uncompetitive, just like the the C Series’s with the legacy models. But it’s hard to tell when this shifting point will occur. Hopefully sooner than later, because Bombardier’s resources are limited.

  4. Like I said before, if they succeed in driving BBD into submission, the outcome will be the Cseries being scooped up by a Chinese or Korean govt backed enterprise with UNLIMITED capital. If they think Cseries is dangerous in the hand of Bombardier, they could be cutting their nose to spite their face

  5. Frequent Traveller says:

    Unless US commercial Laws are different, dumping is prohibited … consequently, one of Boeing’s best-kept Trade Secrets has been vented on the Web : they can build a 737-700 at a cost of (less than) somewhere in the low 20 M$. Now once this fact has reached the public domain, never again Boeing will be able to collect a decent profit margin when selling 737-700s, the professional Traders @ Buyers will have no cease until the price is set to Boeing’s bottomline. In short, Boeing can safely bar the 737-700 from its portfolio, that aircraft is not an “asset” anymore ! This is the boomerang effect consecutive to the UAL recent deal (40 x 737-700). Boeing are sawing off the famous branch …

    • BernardP says:

      AFAIK, if an american manufacturer sells to an american customer, this is not a situation where dumping can be invoked. Dumping can arise with export export sales.

    • Stealth66 says:

      Yes, a consequence of this sale is that Boeing will not sell another 737NG at a good price.

      But I’m not sure it really matters that much to them as they’re just filling in the production slots until they can get the MAX flowing at full speed. Better to sell NGs at next to no profit and keep the line running than to slow down production for a year or two, then have to ramp it up again.

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