Securing a “made-in-US” label for Bombardier Inc.’s C Series jet by building another assembly line in Alabama would cost only “a few hundred million dollars,” Airbus SE’s No. 2 executive said Friday.
The new facility is 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 passenger jets carrying 100 to 150 passengers will generate 6,000 orders over the next 20 years.
“The minute the plane is assembled in Mobile, it will become American; We would have a made-in-USA jet,” Airbus Chief Operating Officer Fabrice Bregier said Friday in an interview in Montreal. “The U.S. market represents about 30 percent of 6,000 planes, so the rewards are sufficiently important to justify the investment.”
Four days after announcing a deal giving Airbus control of a new joint venture that will produce the cutting-edge jet, Bregier traveled with CEO Tom Enders to Montreal to lay out their vision for the European-Canadian partnership. Bombardier invested more than $6 billion to develop the jet over the past decade, but the project was bogged down by cost overruns and delays.
The partnership is seen as a solution to Bombardier’s trade dispute with Boeing Co., which accused its Canadian rival of selling the C Series to Delta Air Lines Inc. at “absurdly low prices.” The U.S. Commerce Department has so far sided with Boeing, slapping preliminary tariffs of 300 percent on the Bombardier jets in recent weeks.
The made-in-USA label is key to exempting plane sales from import duties, Bregier said. Boeing has said duties will still be levied.
Bombardier is already in talks with several potential U.S. customers for the C Series, CEO Alain Bellemare said Friday in Montreal. In addition to the deal with Delta, JetBlue Airways Corp. is another possible customer, Bregier said earlier this week.
Expanding Airbus’s current factory in Mobile, Alabama, to build the C Series would be “quite affordable” given the access it would provide to U.S. customers, Bregier said.
Rather than pay cash for its 50.01 percent share, Airbus agreed to contribute its commercial and manufacturing expertise in a bid to cut production costs of the C Series and secure thousands of new orders. Among its first priorities will be using its marketing muscle to renegotiate some of Bombardier’s contracts with major suppliers.
“Airbus brings credibility and volume and in exchange, suppliers are ready to make an effort on price,” 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. Bombardier’s CS100 — the smaller of two variants of the C Series with as few as 108 seats — has a list price of $79.5 million, while the CS300, with as many as 160 seats, goes for $89.5 million.
“If we make it competitive, if we help to reduce its cost to sell it more aggressively, with the credibility that Airbus brings, we will have a market share that is greatly superior to what the analysts expect now,” Bregier said. “Two thousand planes seems quite realistic, and why not half of the market? If we are jumping into this battle, it’s not to sell a few hundred planes and to stop there.”
Bombardier suppliers involved in the C Series program include United Technologies Corp.’s Pratt & Whitney unit, which builds the engine that power the plane, Rockwell Collins Inc. and Parker-Hannifin Corp.
Although the deal with Bombardier gives Airbus the right to buy out Bombardier and the Quebec government seven-and-a-half years after the transaction closes, the European planemaker isn’t planning to do so, according to Bregier and Enders.
“We have no intention to buy out the others because we know that they are great partners,” Enders said earlier Friday at an event sponsored by the Chamber of Commerce of Metropolitan Montreal. “If they want to stay on the journey going forward, they are very welcome to that. Bombardier brings a lot. It’s one of the premier aeronautics companies in the world, and to be close to them has a great value for Airbus.”
–With assistance from Benjamin Katz
©2017 Bloomberg L.P.