Boeing, Airbus Carve up Embraer & Bombardier, Chinese Aircraft Makers Still Learning the Ropes

Aircraft manufacturing consolidates.

By MC01, a frequent commenter, for WOLF STREET:

After a series of legal battles and political complications, it seems Boeing will finally be allowed to take control of Embraer’s commercial aircraft division. Boeing will pay $4.2 billion for an 80% share in the division. It will also have to finance a 51/49 minority joint venture with Embraer to help market the KC390 military transport aircraft outside of Brazil.

The deal is still pending, waiting for the approval of anti-trust authorities worldwide: Chinese regulators have already announced they will issue a ruling “no sooner” than Q4 2019, most likely in retaliation for the Huawei fiasco. And given the absolute importance of the Chinese aviation market, expect a lot of diplomatic maneuvering from all parts involved.

Embraer is the worldwide leader in what were once called “regional airliners,” meaning short- or medium-range twin-engined aircraft carrying up to 130 passengers. Think of them as the smaller cousins of the Boeing 737 and Airbus A320 airliners which are the prime movers of air travel worldwide.

The Embraer E-Jet family, introduced in service in 2004, has had a phenomenal success, with 1,486 deliveries and 114 firm orders as of December 31, 2018. And the revamped E-Jet E2 family, featuring new wings, new engines and host of other improvements, already has 268 firm orders.

Boeing’s pending acquisition of the division is one of the largest deals in recent commercial aviation history. While anti-trust authorities are likely to approve the deal with the usual laundry list of recommendations and mitigations, it’s another step on the path of commercial aircraft manufacturing consolidation worldwide.

It’s widely accepted Boeing was pushed into this lengthy and costly purchase by Airbus’ decision to acquire from Canadian conglomerate Bombardier a majority stake in the C Series regional airliner after lengthy and complicated negotiations which closed with one of the minority partners (the Bombardier Group) agreeing to cover any cash shortfall up to $610 million up to 2021. The Bombardier C Series has now been commercially renamed “Airbus A220.”

As this peculiar financial arrangement attracted the attention of legislators and regulators in the US on anti-dumping grounds, Airbus “sweetened” the deal by starting a $300 million expansion plan of their existing A320 assembly plant in Mobile, Alabama, where part or all the A220 earmarked for the US market will be assembled.

This is not the first time the C Series has attracted the attentions of regulators worldwide: in 2017 the Federal Government of Brazil, at the time the main Embraer shareholder, raised a fracas at the World Trade Organization (WTO) over suspicions the C Series was being directly subsidized by the Canadian government, thus allowing the aircraft to be sold at a loss.

While such accusations are nothing out of the ordinary in most industries worldwide, there must have been some kernel of truth in it, as Airbus’ first action after becoming majority partner was to pledge a “supply chain cost reduction over 10%.” Later Airbus called for A220 suppliers to cut component prices by 20%.

The C Series has been in financial troubles from day one. In October 2015 the Government of Quebec, through its wholly controlled subsidiary Investissement Québec, injected C$1 billion directly in the C Series program after Bombardier had to take a big C$3.2 billion write-down on the program.

At the same time, Bombardier applied with the Canadian government for C$350 million “financial assistance.” Just one month later, ScotiaBank analysts revealed the C Series program would need a second bailout in “12-18 months” and that the C Series was unlikely to ever turn a profit for Bombardier and Investissement Québec.

With impeccable timing, in April 2016, talks for another C Series bailout had started and by February 2017 Bombardier had received a further C$372 billion from the Canadian Government.

Bombardier has not been faring very well in commercial aviation recently: Its long-time mainstay, the Dash 8 regional airliner, originally introduced in service in 1984 and of which over 1,200 had been delivered by the end of 2018, has become uncompetitive with its long-time rival, the French-Italian ATR family, leading to Bombardier having to find some ways to cut costs.

These cost-cutting measures were implemented in June 2017 after a deal was reached with unions, and included outsourcing the Dash 8 wings and part of the fuselage to the Shenyang Aircraft Corporation of China, which had already signed a contract to manufacture the C Series fuselage.

Not even this was enough however, and in November 2018 Bombardier agreed to sell the whole Dash 8 program to Longview Aviation Capital, which already owns many Canadian aviation programs such as the widely popular Twin Otter utility aircraft and the CL215/415 “Scooper” water bomber.

And finally, Bombardier announced the intention to sell their subdivisions in Britain and Morocco which manufacture the fuselages for the Learjet and Challenger families of business jets and engine nacelles for several aircraft, including the Pratt & Whitney-engined versions of the Airbus A320 family.

Chinese state-owned aerospace conglomerates AVIC and COMAC are rumored to be the only serious bidders for these Bombardier facilities.

AVIC (Aviation Industry Corporation) is the parent company of the aforementioned Shenyang Aircraft Corporation. Despite being a huge defense conglomerate, it’s probably better known in the West for buying engine company Continental Motors in 2010, light aircraft manufacturer Cirrus in 2011, and component manufacturer Align Aerospace in 2015.

COMAC (Commercial Aircraft Corporation) is a company established by the Chinese government in 2008 with the ambitious goal to develop new airliners to lessen China’s dependency on foreign manufacturers such as Airbus and Boeing. COMAC has gone through a painful learning curve dotted with continuous delays, all sorts of technical issues and the discovery that merely throwing billions of dollars and countless manpower hours at a problem is no guarantee of solving it.

The COMAC ARJ21 is a slightly improved version of the venerable McDonnel-Douglas MD80 which was manufactured under license in small numbers in China in the 1980s. It was developed with the help of the Antonov Design Bureau of Ukraine, while the far more ambitious COMAC C919 has run into a laundry list of technical issues, especially with the much troubled domestically-developed engines – so much it will start operations with foreign designed and manufactured engines, the same CFM LEAP that power the Boeing 737MAX and the majority of the Airbus A320neo family.

This is not to say Chinese companies such as COMAC will never be able to develop a successful airliner. But a successful foray by Chinese manufacturers into the commercial aircraft business is at very least a decade away. China is learning a valuable lesson here: merely spending money and reverse-engineering components is nowhere enough to compete in the modern aviation industry. It’s a long way to the top if you want to rock ‘n’ roll. By MC01, a frequent commenter, for WOLF STREET

It just doesn’t let up with airlines. Read… Avianca Brazil Gets Dismembered, Korea’s Asiana Airlines Gets Taxpayer Bailout, Air India Gets Rumors of Default

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  28 comments for “Boeing, Airbus Carve up Embraer & Bombardier, Chinese Aircraft Makers Still Learning the Ropes

  1. Just Some Random Guy says:

    But AOC says by 2030 trains will have replaced planes altogether. So Boeing better start learning how to make choo choos ASAP!!

    • Wolf Richter says:

      Well, Bombardier has been making trains for decades, including the Acela Express trains in the Northeast corridor.

      • WES says:

        Wolf: Sadly they still haven’t figured out how to build trains properly!

        Thankfully their trains don’t need to fly!

        • IdahoPotato says:

          What’s wrong with the Acela Express? 2 hrs 50 mins from NYC to D.C., quiet, Wifi, passable food (airlines won’t even serve you anything for that distance). Business class on Acela beats an airplane any day.

      • Erich says:

        Sadly Bombardier isn’t doing to well in the train manufacturing business either. Toronto which ordered light rail cars from Bombardier has been VERY unhappy with the build quality and rate of delivery. VIA Rail Canada, which is the Canadian version of Amtrak, recently placed a large order for new locomotives and passengers cars with Siemens. While the locomotives and cars will have some Canadian content the locomotives and train sets will be built in Sacramento. Since VIA Rail gets it’s funding from the Canadian government this order was expected to go to Bombardier, a Canadian company. The fact that Bombardier didn’t get this order says a lot.

        Closer to home the ACELA II train sets are being built by Alstom and not by Bombardier which built the current in service ACELA I train sets. Amtrak had so many problems with the ACELA I train sets that it basically has decided never again to order anything from Bombardier.

        In the area of rapid transit the New York MTA disqualified Bombardier from bidding on any future subway car orders.

        So no, rail won’t save what’s left of Bombardier either.

    • Mary says:

      Train travel has always made sense to me. At least you have gravity on your side.

    • makruger says:

      According to a recent CNBC expose on the subject, the future of rail in America is unlikely to be publicly financed since there is little political will for such socialist ideas. If it happens at all, CNBC suggests it will likely be privately financed.

      • char says:

        So it wont happen.

        Public transport infrastructure is never directly profitable.

  2. Rosebud says:

    I don’t have a house with a mortgage I could annually refinance…. so I haven’t taken a flight anywhere in the last 20 years.

    • Lucky Lindy says:

      Good thing, since as Boeing gets a monopoly on airplanes, we can expect more planes to point their nose towards the ground and yell ‘Dive, dive, dive!”. And since the FAA allows Boeing to self-regulate and self-inspect, we can expect more ‘safety features’ that they don’t bother to tell pilots about or which cost extra if you want a plane that doesn’t tend to crash. Welcome to the world where Boeing is both the only source and the only regulator and inspector.

    • Just Some Random Guy says:

      Dude, you can fly pretty much from anywhere to anywhere in the US for $300-400 if you book far enough in advance.

      • MC01 says:

        Perpetual money-loser Norwegian will happily fly you from Oakland to Rome and back for about €600, everything included. Most aircraft are now geared to offer free WiFi to all travellers.

        This is a limited offer, valid only until Norwegian can burn through investors’ cash at the present unbeatable conditions!

  3. 2banana says:

    Does Embraer design in advanced software AI that flys the plane right into the ground that Boeing can learn from?

    • cesqy says:

      Letting young pilots fly like the last Boeing Max crash is part of the problem. Believe the last Boeing Max pilot was 28 and copilot 21?? Bird strikes have been causing emergencies and crashes since the Wright brothers. Experienced pilots don’t turn the autopilot back on when aircraft is in full down trim nor leave the throttle in max till the plane hits the deck but who really knows the full story until the investigation is over. Boeing should have built more redundancy into the air speed/stall system to prevent pilot error.

      • Yaun says:

        Boeing put profit over safety: Adding a system that constrains to the flight envelope is fine, but not telling anyone about it, so pilots don’t have to be retrained so they can tell customers there is no retraining cost involved? That’s not the way an aircraft company works, that’s used car salesman behavior. And then having no redundancy in the sensor which feeds such a critical system is in full violation of functional safety rules, a clear sign that the certification process with the FAA is broken. Its always easy to say that the pilots could have done better when looking back from a comfortable armchair perspective. They could have. But trying to figure out in a few minutes why the plane is acting crazy while being in a life death situation is not an easy task .

  4. Mean Chicken says:

    It seems odd that aircraft components manufactured in China cannot be final-assembled into an aircraft using Chinese robots for the task.

    • cesqy says:

      In China, depending on the use, robots can be more expensive than humans.

      • Mean Chicken says:

        Sorry I wan’t clear, I was using the term “robot” in the generic sense.

  5. stan6565 says:

    This is just most terrible news.

    Once these two artificially bloated behemoths Boeing and Airbus have completely digested the smaller competitors Embraer and Bombardier, their own race to the bottom will accelerate and bring about substantial failure of safety standards and all the victims falling from the skies that go with this.

    Take away the military orders from Boeing and Junckers’ taxational propping of Airbus, these two are nothing but artificially overrated pisspots, soon to be confirmed as newest tools of mass murder brought to us by the Marxist-Leninist Ponzi Capitalism that we all keep voting for, not really knowing what we are doing.

    • MC01 says:

      I’ll be honest here.
      Several of my colleagues in France are extremely frustrated if not downright angry with how media are treating Boeing and the 737MAX. Note they work chiefly for Airbus and Dassault so they should be happy for all the free PR work. Mors tua vita mea and all of that.
      But they aren’t.

      I am old enough to remember the first total hull loss of an ATR regional airliner back in 1987. Since the ATR-42 was the first commercial aircraft to make large use of composite materials, the media started blaming Aérospatiale and Aeritalia for willingly sacrificing human lives on the altar of profit/technology/whatever. Regulating bodies were hinted at having turned a blind eye or even accepting bribes form the French-Italian joint venture to help ATR steal a march from competitors such as Fokker.
      It was as sickening as the present 737MAX debacle and for precisely the same reasons.

      Last week a Sukhoi Superjet 100 (SSJ100) had a horrifying accident at the Sheremetyevo Airport in Moscow, causing the death of 41 passengers.
      The SSJ100’s brief operational history is one marred by continuous accidents and groundings: the problem is not so much the aircraft itself but nearly unbelievable issues with component quality control and inexistant spare parts Sukhoi seems uncapable of solving. At the time of the accident about 15% of the SSJ100 fleet was grounded so they could be stripped of parts and keep the rest of the aircraft flying. Engines were reported to need complete overhauls every 3,000 cycles, less than half the 7,000 specified. I could go on.
      How did the media react? A passing mention in the next day news and that was about it. No scaremongering, no hints of sinister conspiracy, no nothing. It was just another aircraft crash. I hope those who levelled various accusations at me in the past took notice, if they aren’t too busy calling people names.

      Why the difference in treatment? All SSJ100 are flown in the former USSR: CityJet of Ireland got rid of theirs late last year due to the aforementioned reliability issues. Most people are unlikely to ever see one, let alone fly on one. It’s an old trick one of my French professors explained to us at the Uni: create a sense of uneasiness about something close to a lot of potential readers/viewers (for example the aircraft they could be flying on being really a flying coffin) and make as close an accusation of conspiracy as you can without getting hit by a lawsuit. It wouldn’t work with an aircraft only people living in Siberia are likely to encounter.

      • Martin says:

        The lady doth protest too much. Boeing and their senior management are in the shit house because they belong there. Moreover, the latter should be heading for the ‘big house’ if there was any justice in this world. Yes, your correct of course, life isn’t without risk, and every new technology brings with it risk and reward, mostly reward. However, Boeing is now simply a danger to the flying public, a consequence of at least two decades of bean counters prevailing over engineers. Would you fly in a ‘Max’? My son is a commercial pilot, A321’s. So, I do know a little bit about this subject, and I can tell you that I wouldn’t, and neither would I allow any member of my family anywhere near this piece of crap. Children of the Magenta is a real problem, but built-in, zero redundancy is quite another. Your friends and colleagues may have sympathy for Boeing, though I for the life of me can’t see why, but then they didn’t have friends or relatives on these flying coffins.

        • MC01 says:

          32 years have passed and nothing changed…

          Allow me here to remember the story of the Mitsubishi MU2, another “widowmaker” of the kind the media love.
          In 1988 (give or take one year; my memory is not what it used to be) the FAA undertook a serious review of the aircraft following a series of high profile accidents. The all-knowing media obviously alleged those shifty Japanese (remember, those the years when Japan Incorporated was on the brink of buying the world) had built an unsafe aircraft and were peddling it to gullible foreigners, perhaps with the complicity of regulators.
          Does this sound familiar?
          The FAA ruled there was nothing wrong with the MU2 itself, but since it was a very “hot” aircraft sold at a very attractive price it was likely to be operated by airlines whose crews lacked experience and training in such a performing aircraft. The FAA hence made type training for the MU2 mandatory. Accident rates immediately went under control.

          The FAA, the EASA, the CAAC and all their colleagues worldwide take air safety very very seriously. They aren’t bumbling amateurs or ultra-corrupt crooks like the media love to allege because some people love a good scare story. The testing aircraft have to go through these days is not perfect (nothing ever is) but is damn through. It has been evolved through decades of painful experience to ensure safety in all conditions that can be encountered in service and will continue evolving.

          It’s very obvious there’s something very wrong with the MAX family but to even allege the FAA and the EASA allowed it to make through type certification due to bribery or other forms of corruption is absurd. The problem(s) will be identified and solved and the MAX will be back in service, like it or not. It has happened before and will happen again with other “widowmakers”.
          Whoever at Boeing (or Boeing subcontractor) is responsible for this fiasco will have a lot of explaining to do, and not in anonymous form and to a tabloid masquerading behind a thin façade of journalistic integrity.
          Boeing will have to pay through the nose and will be rightly sued not merely by the families of those who lost a beloved one in the accident but by the airlines whose operations have been affected. Large MAX customers like Ryanair and Southwest will grab them by the ankles and shake them for pennies. Lawyers are going to make a fortune.

          It’s in the nature of things and part of doing business that you will screw up and will have to pay dearly for it. This applies to giant corporations as well, regardless of what the dirtsheets say.

    • Harrold says:

      Boeing’s fingers are all over the SSJ100!

      Boeing and Sukhoi Announce Expanded Agreement

      The Boeing Company [NYSE: BA] and Sukhoi today signed an agreement to expand collaboration between the two companies. As a result of extended negotiations, Boeing will expand its advisory role on the Sukhoi regional jet program, known as the Superjet 100 (SSJ)….

  6. TonyT says:

    Before the Huawei arrest, China had already screwed over an American company, Qualcomm, by never giving approval to buy NXP. (And then Trump nixed Broadcomm’s (formerly Avago, with former HQ location in Singapore) bid to buy Qualcomm. Semiconductor M&A makes aviation M&A look simple).

  7. WSKJ says:

    Thanks, MC01, for the informative column; I have read it plus following commentary with interest. So, it looks as if Boeing and Airbus are the last two mega-competitors in the production of regional aircrafts. Not through their own virtues, but through acquisitions.

    This update (this May 13, 2019 column) leaves us readers looking for any cause for confidence in the construction of aircraft, and oh yes, here it is:

    (Looking for heroic episodes, we allow ourselves to go back a few decades.)
    the book, SR-71, by Richard H. Graham, copyright 2013 by Zenith Press. Subtitle:

    The Complete Illustrated History of THE BLACKBIRD The World’s Highest Fastest Plane


    and thanks, Wolfe, for all you do to print (e-print) the big stories.

    • char says:

      There is also Japan, Russia and China. Each is trying.

      • MC01 says:

        Japan is possibly the major aircraft component supplier worldwide.
        Besides owning lock, stock and barrel the market for advanced composites, most subassemblies are manufactured by Japanese companies and shipped to final assembly sites. Fuji Heavy Industries (now Subaru), Mitsubishi, Kawasaki Heavy Industries, IHI… take your pick.

        The Mitsubishi Regional Jet (MRJ) smells to me as yet another “pork barrel” project of the kind Japanese keiretsu love. The monstrous Chuo Shinkasen was not enough apparently.
        Apart from orders from US companies with financial ties to Mitsubishi and their partners there isn’t a whole lot of interest for the MRJ outside of ANA and JAL, both already dragooned into ordering the aircraft.
        Mainland Asian and South American companies don’t seem interested and, remember, the MRJ is likely to be sold at cost if not at loss. Mitsubishi executives don’t expect to make money out of this, just like they didn’t expect to make money out of the previous NAMC YS-11, which was directly subsidized by the now defunct MITI with the stated purpose of being sold at a loss.

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