On our main YouTube channel, we recently provided a relatively short overview of
how Boeing contested Delta’s order of the Bombardier CSeries in 2017. This video will
provide a more detailed account of what happened, as well as debate whether or
not Boeing had good reason to be worried about the CSeries from- which is now the Airbus A220.
On April 28th, 2016 Canadian planemaker Bombardier
would land a significant order from Delta Air Lines for its new CSeries aircraft.
The deal was critical for Bombardier and its newest aircraft program-
which was hoping to make inroads in the US market. A year later, however,
Boeing would file a complaint against the deal- leading to chaos and turmoil for Bombardier
and start a chain reaction that would eventually lead to the program becoming the Airbus A220.
As is relatively common knowledge in the aviation world now, the Airbus A220 was previously known
as the Bombardier CSeries. After decades of producing smaller regional aircraft in the
form of the CRJ and Dash 8 series, Bombardier set its sights on producing a bigger aircraft-
a next-generation short and medium-haul jet utilizing the latest technologies available.
Despite the rewards of lower operating costs and higher efficiencies,
there are many risks in producing an aircraft with a clean-sheet design. Doing so requires
financial investments, including massive amounts of research and development while setting up
new supply chains and production processes. Even if the aircraft is a clear gamechanger,
airlines may be hesitant to adopt a brand new type into their fleets: One that has
not withstood the test of time and thousands of service hours. It doesn’t stop there, as airlines
must also invest in training flight crews and maintenance personnel on this brand new type.
With all of the potential risks and required investments, Bombardier had stepped out of its
comfort zone in developing its CSeries jet. As a result, racking up orders would be critical
for the company as each new customer would signal to the rest of the market confidence in the type.
Launching the program in 2008, Bombardier would need to seriously push the aircraft
and rack up orders. By 2010, the first airlines to sign up for the CSeries were
Germany’s Lufthansa Group (the planes would go to SWISS) as well as Ireland’s Lease Corporation
International and US-based Republic Airways. Already at this point, with billions poured
into the program, the media had been critical of CSeries’ lack of sales. It wouldn’t be until 2012
that airBaltic would sign on for an initial 10 CS300s (nowadays known as the A220-300).
Being one of the world’s largest aviation markets, landing sales in the US would
have been huge for Bombardier. If one airline were to take a risk and go big on the CSeries,
it could have led to other US operators taking note and following suit. This is why Delta’s
2016 deal with Bombardier was so critical. In late April of 2016, the Atlanta-based carrier
would commit to a firm order for 75 CS100s with options for another 50. The size of the order,
a deal valued at $5.6 billion at list prices, was just what Bombardier needed to regain momentum
as it worked towards ramping up production. “This order is a resounding endorsement
of the CS100 aircraft performance and its exceptionally low operating costs. In addition,
its widest aisle, widest seats and largest bins in its class will be attractive features
for Delta’s passengers.” -Fred Cromer, President at Bombardier Commercial Aircraft via USA Today
Bombardier would have about a year to celebrate the signing-on of its new major US customer,
for it was in April 2017 that Boeing filed a complaint with the US International Trade
Commission (USITC), accusing Bombardier of quote-unquote “dumping” the jets- selling
them at below production cost. The petition accused the Canadian planemaker of selling its
CS100s to Delta for $19.6 million each, well below their $33.2 million production cost.
It was also noted that these low prices were the result of Canadian government subsidies,
giving Bombardier an unfair advantage.
Boeing also asserted that Bombardier’s subsidized sales of its CSeries in the US
was at the detriment of its 737 program, which would soon see the 737 MAX enter service.
Five months after Boeing’s petition, the US Department of Commerce issued a preliminary
ruling to impose a 219.63% tariff on every CSeries airliner brought into the country.
This would have effectively tripled the cost of each aircraft for Delta.
This was a preliminary ruling, with the USITC set to issue a final judgment on the Commerce
Department’s proposed tariffs by early 2018. “The US Department of Commerce today affirmed that
Bombardier has taken massive illegal subsidies in violation of existing trade law…Subsidies
enabled Bombardier to dump its product into the US market, harming aerospace workers in the
United States and throughout Boeing’s global supply chain.” –Boeing via Business Insider
As reported by Bloomberg, Delta issued a statement saying that there was no risk to Boeing’s market-
as it wasn’t actively producing aircraft in a similar size category.
“We are confident the USITC will conclude that no US manufacturer is at risk because neither
Boeing nor any other US manufacturer makes any 100-110 seat aircraft that competes with the
CS100…Boeing has no American-made product to offer because it canceled production of
its only aircraft in this size range — the 717 — more than 10 years ago.”
According to the US carrier, Boeing’s only proposed alternative to the CS100 at the time
was to offer Delta a batch of second-hand Brazilian Embraer E190 regional jets.
The proposed tariffs drew attention at the highest levels of government.
Canada’s Minister of Foreign Affairs at the time, Chrystia Freeland, called the situation and
Boeing’s “protectionist nature” deeply troubling. “It is beyond all reason that Boeing could
be threatened with injury in a market segment it exited over a decade ago,”
Freeland said in December of 2017. Freeland’s comments came at an even
worse point for Bombardier. In October, the US Department of Commerce had hit it with a 79.82%
anti-dumping duty while “generously” adjusting its 219.63% tariff down to 212.39%.
Despite legal challenges launched, the Financial Post reported that the United States Department
of Commerce would uphold the earlier decision and hit Bombardier with a total 292.31% tariff.
This turmoil over tariffs would see Airbus swoop in to throw the CSeries program a lifeline. With
the European firm already having a production facility in Mobile, Alabama, the jets meant for
Delta would be manufactured within the US, thus avoiding the hefty tariffs proposed.
With the cards seemingly stacked against Bombardier, it looked like the Delta deal was
in real jeopardy. However, January 2018 would see a huge twist, with the USITC ruling that
quote “100- to 150-seat large civil aircraft from Canada do not injure U.S. industry,”
This ruling would see the 292% tariffs overturned. Of course, by this point, Bombardier had already
agreed to sell the majority of the program to Airbus. This would see the planemaker have a
controlling share of 50.01% in the program. The CSeries transition to the A220 has its own lengthy
story. However, in this video, we’ll strictly focus on Boeing’s challenge to Delta’s order.
Although the USITC would finally rule against Boeing’s petitions, is it possible
that the US planemaker had good reason to be worried about the CSeries? Well, it could
be argued that it did- at least a little bit. In the case of Delta and its purchase of CS100s,
the risk to Boeing’s market did indeed appear to be non-existent.
However, looking at the CS300 (now A220-300), Boeing’s smallest commercial aircraft,
yet to enter service, does have a little bit of overlap: The 737 MAX
7 has a maximum capacity of 172 seats while the A220-300 can squeeze in a maximum of 160.
Thus, perhaps it could be argued that Boeing was looking at the threat that the CSeries
could have become rather than the threat that it was at that precise moment.
Since that court battle over tariffs in 2017, the market has constantly shown that airlines have
evaluated the two types against each other (albeit not as common as the A320 family versus the 737).
We know that Allegiant was assessing the A220 but instead went with the 737 MAX for various reasons.
airBaltic went ‘all-in’ on the Airbus A220-300 to replace its aging fleet of 737-300s and -500s.
And Air France was reportedly evaluating the 737 MAX should a fruther A220 stretch not materialize.
Going forward, examples like these aren’t likely to stop. And it’s conceivable that airlines may
indeed choose the Airbus A220 over smaller 737 MAX jets as they modernize or expand their fleets.
All of these evaluations somewhat add credibility to Boeing’s big fuss in 2017-
from a position of hindsight at least. Boeing’s battle will be further validated
if Airbus can ramp up A220 production, and also offer another stretch of the jet.
It’s difficult to say what could have happened had Boeing not filed its claim and allowed
Bombardier to conclude its deal with Delta. Would the CSeries have become as popular as
the A220 is today? We know that Airbus and its huge cache of resources have brought a
lot to the table in terms of service and support, as well as the ability
to ramp up production. All of this has been a significant boost to the program’s credibility.
Ultimately, however, what’s done is done, and from the looks of it,
Delta has done well with its early adoption of the A220.
What do you think? Is the A220 now a legitimate threat to the Boeing 737?
Was it a threat in 2017 when Boeing first filed its complaint? Let us know by leaving a comment.