Embraer: Bombardier’s Delta CSeries order enabled by unfair subsidies
Embraer Commercial Aviation president and CEO Paulo Cesar Silva has alleged that Bombardier won an order from Delta Air Lines for the CSeries based on improper government subsidies.
The Brazilian manufacturer “very aggressively” offered the E190 to Delta, Silva told ATW in an interview at the Regional Airline Association (RAA) convention in Charlotte, North Carolina. But Atlanta-based Delta instead chose the CS100, placing an April 28 order for 75 firm aircraft plus 50 options, in what Bombardier characterized as an “industry-accepting” order for the CSeries.
“Of course, we win and lose deals in the market,” Silva said. “My remarks and my complaint are given [because of] the way we lost this campaign.”
The Quebec provincial government has invested $1 billion in the CSeries program and Montreal-based Bombardier has additionally been in negotiations with the Canadian federal government about a potential investment in the narrowbody airliner program, reportedly also for $1 billion. The CSeries is slated to enter service with Swiss International Air Lines in July, but multiple delays have driven up the cost of the program. In its first-quarter financial report, Bombardier said it expects to record approximately $500 million in charges in the second quarter related to closing CSeries orders from Delta, Air Canada and airBaltic.
“Any kind of a subsidy brings a distortion to the market,” Silva said. “In this case what we are seeing is the government of Canada injecting $2 billion—$1 billion from Quebec and another billion from the federal government—to help the CSeries program. According to our experience in this campaign with Delta, clearly what was offered there was only possible because of the huge support coming from the government. And just after the announcement of the deal, if you look at the [quarterly earnings] report of Bombardier, there is a write-off of $500 million. They called that an onerous provision and linked it to the Air Canada and Delta transactions. So we are very keen to compete on products—quality of products, efficiency, being on time, being on budget—however, it’s tough to compete against a government.”
Bombardier spokesperson Marianella de la Barrera declined to comment on Silva’s allegations, but said, “It’s very clear why Delta chose the aircraft. It’s the better technology. Delta has been very clear publicly about why they chose the aircraft.”
Silva said he “cannot guarantee” that the CS100s sold to Delta were done so below cost, but he believes it is “more likely that’s the case.” He added, “The Canadian taxpayer is providing money to Bombardier to have Bombardier offering aircraft in the market at below cost.”
Silva said Embraer is considering its legal options: “We are looking at the alternatives that we have in order to act against this. Could be the WTO, for instance.”
The Delta CSeries order was a double blow for Embraer. Not only did Delta choose the CS100 over the E190, but the airline also said it would no longer add 20 used E190s it had planned to operate in its mainline fleet.
“I think the [E190] is viable in the [US] mainline [airline market] … on a level playing field basis,” Silva said. “Again, I insist on that point. If we have a product that’s being offered at below cost and somebody else is paying the bill who is not the manufacturer, then we can have some doubts about the sustainability of this process.”
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