![](\"http:\/\/wpmedia.business.financialpost.com\/2016\/05\/fp0602_airplane_orders_cnew.jpg?quality=60&strip=all\")
<\/p>\nRecently, Bombardier found itself at the center of an international trade dispute as the U.S. Commerce Department imposed duties of 300% on the Canadian aerospace manufacturer\u2019s C-Series program. Boeing does not offer aircraft in the competing size range and did not compete for the order[1], but proposed a tariff in a complaint which alleged that Bombardier \u201creceived illegal subsidies and dumped the planes at absurdly low prices\u201d in its 2016 sale of 75 CS100 jets to Delta[2]. The announcement by Commerce Secretary Wilbur Ross stated that \u201csubsidization of goods by foreign governments is something that the Trump Administration takes very seriously,\u201d echoing President Trump\u2019s \u201cAmerica First\u201d policy[3]. The airplanes are uneconomical for Delta with the proposed tariff[4], and without access to the U.S. Market the financial stability of the C-Series program, which cost over $6B to develop[5], is at risk.<\/p>\n
Uncertainty in future C-Series production has serious consequences for Bombardier\u2019s supply chain. Since commercial aircraft have service lives averaging over 20 years[6], airlines require a stable supply of maintenance parts and support for decades after an airplane enters service. Without credible guarantees of stability, airlines are hesitant to place orders and existing customers may cancel backlogged orders[7]. Risk in the backlog makes it impossible to communicate accurate forecasts to suppliers, which is vital due to the long ramp up and multi-year lead times in aerospace manufacturing.<\/p>\n
Since the ruling, Bombardier has scrambled to keep the C-Series program alive in light of these new American protectionist policies. The C-Series supply chain operates globally, but is especially important in Canada and Northern Ireland, where Bombardier employs 21,000 and 4,200 employees, respectively[8]. The Canadian and British governments have come to Bombardier\u2019s defense, threatening valuable military contracts that Boeing was expected to win, but Boeing has not backed down[9]. In October, Bombardier announced that it will sell a majority stake and operational control of the C-series airplane program to Airbus at no cost\u2014even adding a further guarantee of $700M by Bombardier to cover program shortfalls over the next two years[10].<\/p>\n
The deal is costly but offers major benefits to Bombardier. In the short term, partnering with Airbus offers a credible promise of stability, and access to Airbus\u2019 larger sales network to improve demand. Bombardier can leverage this increased volume and the scale of Airbus to renegotiate better pricing and terms with C-Series suppliers. Due to the high levels of uncertainty, Bombardier\u2019s suppliers required substantially higher prices as compensation for the risk[11]. Supplier\u00a0costs represent around 60% of the total cost of the assembled CS100, and industry experts estimate Bombardier could save up to 40% of recurring supplier costs by aligning supply chains with Airbus. Bombardier can also expect to leverage Airbus\u2019 global service network, avoiding the need to build out a parallel chain to supply replacement parts[12].![](\"http:\/\/www.canadianbusiness.com\/wp-content\/uploads\/2013\/10\/cseries-chart-big.png\")
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In the medium term, Bombardier is considering opening a second final assembly line for the C-Series at Airbus\u2019 new production facility in Mobile, AL[13]. Airbus COO Fabrice Bregier estimates building another assembly line would cost \u201ca few hundred million dollars[14],\u201d but assembling the planes in Alabama may allow the program to avoid the tariffs if the Commerce Department rulings are upheld by the U.S. International Trade Commission (ITC). The U.S. market represents approximately 30% of the 6,000 total orders expected over the next 20 years[15], or $144B at list prices[16], so the investment has significant potential upside.<\/p>\n
Despite the benefits, this deal carries risks for Bombardier. Full regulatory approval is not expected until late 2018, and until then coordination between Bombardier and Airbus is limited[17]. Boeing continues to challenge the deal, insisting that tariffs should still apply and threatening litigation which could \u201cdrag on for years[18]\u201d. From a more optimistic viewpoint, it is possible that the U.S. ITC would have blocked the tariffs even without the deal, and thus the Mobile final assembly line offers less benefit. In that case, Bombardier may have left value on the table by partnering with Airbus on such favorable terms, and may have had equal opportunities for cost reduction through supply chain partnerships with COMAC, the Commercial Aircraft Corporation of China[19]. Still, given the isolationist sentiment permeating Washington, this deal seems like a safe bet by Bombardier to ensure the viability of the C-Series program.<\/p>\n
Questions<\/strong>:<\/p>\n Bombardier\u2019s Quebec production line is unionized, but Airbus\u2019 Mobile factory is not unionized and Alabama is a right-to-work state. What actions would you take as a union leader representing Bombardier\u2019s Canadian employees? How would you respond as a senior executive representing Bombardier?<\/p>\n How would you ensure that Delta (and other U.S. carriers) maintain confidence in the program between now and the time the production line in Mobile is up and running (assume 3 years)?<\/p>\n (Word Count: 799)<\/p>\n References<\/strong>:<\/p>\n [1] https:\/\/www.flightglobal.com\/news\/articles\/cseries-prices-threaten-737-max-7-viability-boein-437624<\/p>\n [2] https:\/\/www.reuters.com\/article\/us-boeing-bombardier-commerce\/u-s-backs-300-percent-in-duties-on-bombardier-after-boeing-complaint-idUSKBN1CB29X<\/p>\n [3] https:\/\/www.commerce.gov\/news\/press-releases\/2017\/09\/us-department-commerce-issues-affirmative-preliminary-countervailing-1<\/p>\n [4] https:\/\/www.reuters.com\/article\/us-delta-air-bombardier-tariffs\/delta-refuses-to-pay-tariffs-on-bombardier-cseries-jets-idUSKBN1CG20F<\/p>\n [5] https:\/\/www.bloomberg.com\/news\/articles\/2017-10-17\/airbus-tie-up-with-bombardier-is-challenge-for-china-s-ambitions<\/p>\n [6] http:\/\/www.boeing.com\/assets\/pdf\/commercial\/aircraft_economic_life_whitepaper.pdf<\/p>\n [7] https:\/\/airwaysmag.com\/industry\/aircraft-order-cancellations-and-deferrals-cause-for-concern\/<\/p>\n [8] https:\/\/www.nytimes.com\/2017\/10\/10\/world\/europe\/donald-trump-bombardier-northern-ireland.html<\/p>\n [9] http:\/\/fortune.com\/2017\/09\/28\/boeing-bombardier-theresa-may-jobs\/<\/p>\n [10] Analysis: Airbus Acquires 50% of Bombardier CSeries, Vinay Bhaskara, Airways Magazine, October 16, 2017.<\/p>\n [11] Transformative Transaction: Airbus\u2019 decision to take control of the Bombardier C Series bodes deep consequences across the civil aerospace industry, Flateau Toulouse, Jens et al., Aviation Week and Space Technology, October 30 \u2013 November 12, 2017<\/p>\n [12] https:\/\/www.economist.com\/news\/business\/21730466-american-aerospace-giants-campaign-tariffs-against-c-series-aircraft-has<\/p>\n [13] https:\/\/www.washingtonpost.com\/news\/business\/wp\/2017\/10\/16\/canadian-firm-could-dodge-300-percent-tariff-by-building-jets-in-alabama\/?utm_term=.8c38ed322dd7<\/p>\n [14] https:\/\/www.bloomberg.com\/news\/articles\/2017-10-20\/airbus-puts-price-tag-on-made-in-usa-label-for-c-series-jet<\/p>\n [15] https:\/\/www.bloomberg.com\/news\/articles\/2017-10-20\/airbus-puts-price-tag-on-made-in-usa-label-for-c-series-jet<\/p>\n [16] http:\/\/commercialaircraft.bombardier.com\/en\/media\/list-prices—commercial-aircraft—bombardier.html<\/p>\n [17] http:\/\/www.4-traders.com\/BOMBARDIER-INC-1409153\/news\/Bombardier-Union-representing-2-000-Quebec-workers-has-mixed-feelings-about-CSeries-Airbus-deal-25303840\/<\/p>\n [18] https:\/\/www.ft.com\/content\/d888b3e2-b357-11e7-a398-73d59db9e399<\/p>\n [19] http:\/\/www.bombardier.com\/en\/media\/newsList\/details.33466-comac-and-bombardier-sign-definitive-agreement-to-establish-commonality-opportunities-between-c919-and-cseries-aircraft.bombardiercom.html<\/p>\n","protected":false},"excerpt":{"rendered":" Following a 300% tariff hike on the C-Series aircraft, Bombardier entered a joint venture by giving a majority stake in the program to Airbus for free. Their combined supply chain poses a threat to Boeing in the single-aisle market.<\/p>\n","protected":false},"author":10420,"featured_media":22648,"comment_status":"open","ping_status":"closed","template":"","categories":[285,3222,2515,3239,2690,3240,17,3220],"class_list":["post-22638","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-aerospace","category-global-supply-chain","category-international-trade","category-isolationism","category-joint-venture-uncategorized","category-protectionism","category-supply-chain","category-tariff","hck-taxonomy-organization-bombardier","hck-taxonomy-industry-aerospace","hck-taxonomy-country-canada"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n