Friday 19 January 2018

Boeing rails against Bombardier deal to escape tariffs

Airbus president and chief executive officer Tom Enders and Alain Bellemare, president and chief executive officer of Bombardier. Photo: Reuters
Airbus president and chief executive officer Tom Enders and Alain Bellemare, president and chief executive officer of Bombardier. Photo: Reuters

Nivedita Bhattacharjee

Bombardier's deal with Airbus solves a number of problems for the Canadian plane-and-train maker, mostly by making Boeing's complaints against the company effectively moot, analysts have said.

Montreal-based Bombardier said yesterday it would sell a majority stake in its CSeries jetliner program to Airbus as it searches for a way to avoid punitive US tariffs threatened by a trade dispute with Boeing.

The deal could also give Bombardier and Airbus an edge over Boeing in the market for narrow-body aircraft.

"(The) Airbus-Bombardier partnership is all about squeezing Boeing," Morningstar analyst Chris Higgins said.

Boeing and Airbus both lack competitive planes in the lower end of the narrow-body market, and the CSeries provides Airbus with a line that competes directly with Boeing's 737 MAX 7, Higgins added.

The CSeries jetliners have not secured a new order in 18 months and face a possible 300pc duty on US imports, after Boeing accused Canada of unfairly subsidizing the planes.

The deal with Airbus means CSeries jets can be built at Airbus' Alabama assembly plant, potentially circumventing US import duties.

"With the aircraft now having a US domestic production line, the issue around the Boeing trade complaint will be moot," analysts at National Bank of Canada said.

Locked in a separate 13-year trade dispute with Airbus, Boeing called the sale a "questionable deal" between two of its subsidised competitors.

Other analysts said that by buying a controlling stake of the CSeries jets, Airbus will add the full strength of Europe's largest aerospace group to the planes, helping with everything from sales and assembly to customer support.

"Bombardier should enjoy higher sales and lower costs than it would have captured alone," Credit Suisse said.

The Canadian company - which is in the middle of a five-year turnaround plan after facing a cash crunch in 2015 - said the Airbus partnership should more than double the value of the CSeries program.

For Airbus, buying the troubled line of jetliners allows the company to improve its operational and supply-chain lines, which should in turn help in saving production costs, analysts said.

"The larger sales and marketing network at Airbus should also lead to a more robust order backlog," JP Morgan analyst Seth Seifman said.

Airbus shares were up 4pc yesterday, one of the biggest risers in Europe. Boeing shares were down.

Reuters

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