SUMMARY: Boeing has complained to the Trump Administration and the International Trade Commission about Bombardier’s “price dumping” in the 2016 Delta Air Lines (DAL) deal for 75 x CS100’s. Which according to Boeing was done at a price of $19.6M per unit (72% off list price), on an aircraft Boeing says costs $33.2M to produce, a loss of $13.6M per unit (yes, a -69% profit margin) and a total loss of $1.02B on the Delta deal. That is even lower than my highly criticized numbers from “industry experts” for the past 12 months , using a price of $22M (69% off list price), CS100 production cost of $29M and a loss of $7M per unit, a $525M total loss, now the loss on the DAL deal using Boeing numbers is 94% ($495M) higher than what I calculated a year ago. So much for Bombardier’s BS “onerous contract provision” of $492 in 2016 that everyone pointed to as the “loss”. Now Bombardier’s desperation for CSeries sales is out in the open. It “dumped” prices way below cost, in fact all 320 CSeries orders (in 9 years of dismal sales/marketing) are priced below cost and surely Air Canada’s 2016 deal (45 x CS300’s) was at a huge discount of +/-72% as well, and the total loss could be as high $612M on top of the DAL deal. So Bombardier sold 120 aircraft in 2016 on 2 BIG deals, that may end up being a loss of $1.63B and the greedy top 5 Executives at Bombardier wanted a 50% pay raise last month for a “Exceptional” 2016 ? BS, they should all be fired! As well, since last May’s deal with DAL, only ONE order for the CSeries has been booked, from Air Tanzania for just 2 x C300’s, yes 12 months and 3 big Air Shows (Farnborough, Dubai, Zhuhai) and just 2 aircraft orders and no one is worried ? seriously ? Meanwhile, Airbus has 5,056 orders for its new A320neo family and Boeing has 3,703 orders for its new B737Max family. Lots of talk about new sales at Bombardier (BA, Spirit, JetBlue, etc.), but since there are just 4 OEM’s, every airline will want to talk to each OEM when doing a deal to get the lowest cost. The problem is NOT the CSeries, its fantastic, but very low demand in the 100-150 passenger market, coupled to intense price competition by the duopoly makes life impossible for the CSeries. With all 320 CSeries sold below cost, why be in the business ? as the deliveries of these 320 aircraft will take Bombardier well into 2021, with a big loss every year of production, I see NO light at the end of the tunnel, other than an acquisition by COMAC (China) that needs Bombardier’s know how in support, training and sales/marketing ? and its the only commercial aircraft OEM that can be bought.

READ more on Bombardier, just click and see past Articles on the troubled OEM.

https://www.linkedin.com/in/tomas-chlumecky-3200a021/

I have been saying for a long time that the move to make the CSeries a government owned program by spinning off the program into a new limited partnership (CSALP-CSeries Aircraft Limited Partnership), where the Province of Quebec has 49.5% for $1.0B, coupled to 2 huge money losing deals done last year with Delta Air Lines (75 aircraft)) and Air Canada (45 aircraft) to kick start the sagging and struggling CSeries orders (320 in almost 9 years of dismal sales/marketing) will bring trouble from Boeing.

They have now filed a complaint charging “dumping” to the US Commerce Dept. Bombardier is potentially in deep trouble from from the Trump Administration, and faces possible anti-dumping duties, to offset the unfair subsidized pricing.

In 2016, Bombardier decided after months of NO sales of the CSeries, it needed “traction” so it went out confident it has money from Quebec, and won 2 big deals back to back, Air Canada (45 x CS300’s) on political and legal “concessions” and Delta Air Lines (75 x CS100’s).

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I have written in my blog (Aviation Doctor) for the past 12 months about the horrible Delta Air Lines deal, with price at $22M (Airbus claim in 2016) for each of the 75 $71M list price (2016) CS100’s Delta bought last year, or +/- 69% off list price, production cost of $29M and a loss of around $7M per unit ($525M loss), which I thought was real, though crazy, but after today’s info, the deal is a lot worst then even my own numbers.

Yes, I was criticized by “industry experts”, for my numbers which were good, and maybe I was off by a lot, as the Boeing numbers IF accurate show that the loss is $1.02B or 94% higher than even I estimated on the DAL deal, as the latest information from Boeing claims the production costs of the CS100 is $33.2M, a ridiculously low price of $19.6M per CS100 was obtained on the Delta Air Lines (DAL) deal, which mean 72% off list price and a loss of $13.6M per unit or $1.02B on all 75 x CS100’s for Delta.

The above numbers is what Boeing is using to calculate the anti-dumping duty to be charged against Bombardier of $13.4M per aircraft, as cost of aircraft ($33.2M) minus price ($19.6M), equals $13.6M, can you imagine that a troubled manufacturer like Bombardier would  discount 72% off a list price and sell at a profit margin of -69% on the DAL deal ? and those Executives wanted a 50% raise last month for great work ?

The top 5 executives at Bombardier last month tried to give themselves a 50% raise for a “exceptional” 2016 ? no morals, no ethics, no shame, no pride and no good and all should be fired !

They could have only done that with the “state aid” from Quebec, hell, 6 months earlier they were ready to file for bankruptcy protection ! nothing else changed but the $1B in aid.

So, it looks as if the DAL and Air Canada deals for 120 CSeries last year may equate to a loss of $1.63B  when all is said and done, based on latest information from Boeing, OMG, investors, employees, Quebec and suppliers, should be real worried now.

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Yes, Bombardier is and was DESPERATE for that DAL sale, as today still just 320 orders (N0 40 for Republic Airways) for the CSeries after almost 9 years of sales, how come ?

If duties are imposed that will add $13.4M to the price per unit to the CS100 if imposed and seriously under mine its sales in the so important US market.

Bombardier lost $981M in 2016, but received $2.5B from the Province of Quebec to save it from bankruptcy which it was ready to file for in late 2015 after finding NO interest in the CSeries program it was trying so hard to sell, and then Quebec show sup with $1.0B for 49.5% ? that is “illegal state aid” in my world and 17 years experience in Europe.

The company has been a regular receiver of Canadian “corporate welfare” since the 1960’s, and all amounts received and paid are still to this date “SECRET”, which is totally unacceptable in a democracy and where taxpayers money is being handed to a corporation, especially in Quebec where corruption has and is rampant in Government from the top down.

This is not the first time the US is scrutinizing CSeries funding, back in 2008, it investigated the $350M from Canada and $298M from the UK and millions from Quebec that were used to launch this CSeries program in the first place.

In 2002, the WTO ruled that $1.7B in low interest loans to Bombardier did break international trade rules. Time to STOP assisting Bombardier and give back all the taxpayers money it received over the past 50 years, this crony capitalism between our Federal Government and Bombardier has to stop, we keep treating them “special” so that Quebec will not separate from Canada ?

Yes, Bombardier in 2016 has written down a $492M (that is 48% of the projected loss on the DAL deal alone using Boeing’s numbers) onerous contract provision but it is just BS, a fraction of the total loss from the DAL and Air Canada deals in 2016, just “craetive accounting” to hide the truth ?

The onerous contract is one where there is unavoidable costs to meet the obligation to deliver on the signed ocntract. If the costs exceed the benefits (price) expected to be received under the contract, the unavoidable costs will reflect the LEAST NET COST of exiting from the contract.

In other words, the $500 million being used by Bombardier today is the lower of the cost of delivering the aircraft as per contract and any penalties arising from NOT delivering on the contract.

So the net loss on these 127 aircraft is not $500 million, it is the cost if they cancelled the deliveries/program, the LEAST net cost, which I estimate $840M still today, at least,

Look, the CSeries is a state supported program, and state owned, the whole set up was a risky, and Boeing was going to complain, as has Embraer and ATR to the WTO, the US market is key to the success of the CSeries, without sales there ALL commercial aircraft programs have failed in the past.

Bombardier stock (TSX:BBD.B) has recovered from its $0.77 price in February, 2016 to over $2.00, yet WHY ? if one really digs into the whole product line, the company is in trouble, and a few graphs may show that, below.

1. Orders are VERY slow (360 ? 40 are for Republic Airways since 2010, now coming out of Chapter 11 bankruptcy, it will NOT take them)

2. CRJ is dying, with just 52 in backlog at the end of 2016, at 3.8 per month, good for 13 months (March, 2018) at same production rate and NO new orders.

3. CRJ is loosing out in market share to Embraer’s E175 and fast.

4. Q400 down to 31 orders in backlog at the end of 2016, at 2.7 per month production, good for 11 months (January, 2018)at same production and NO new orders.

5. The 100 to 150 passenger market has been in decline for years, peaked in 1991 with 330 deliveries, Bombardier forecast of 7,000 deliveries over 20 years is total BS.

6. Bombardier’s Business Aircraft (BBA) stable is struggling, especially Learjets and Challenger 650 (4th variation of 1970’s Canadair CL-600 Challenger and father to entire CRJ line).

7. Bombardier Global G7000 will be the future of its business jet business by 2020, will it win big against ACJneo and BBJMax with 100 to 150% more cabin space/volume and equal range in a market that sees little demand today ?

8.Is Bombardier “dreaming” about where it will be in 2020 ? $6 billion from Commercial Aircraft (only CSeries) ? would need 160+ deliveries per year, only 120 planned today for 2020, business jets $9 billion from G7000 ? that would require 123 deliveries per year ? maybe Challenger 350, but again fantasy.

Well, Bombardier is in a “pickle” the Trump administration will be happy to hit it with anti-dumping duties to protect Boeing, and that spells a disaster for the CSeries in the US market, but its their own making, arrogant and greedy for taxpayers money, they have done it to themselves.

Till next time, cheers, and thank you as always.