Governments set to show C Series the money

 - December 10, 2007, 10:40 AM

Perhaps the most vital component in Bombardier’s C Series of single-aisle commercial jets will consist not of metal, pneumatics or electrical circuits, but money. By the end of last month the company expected to know the stakes governments would risk, as its February deadline for all to ante up approached. Unwilling to tip his hand, C Series program head Gary Scott wouldn’t reveal the number of U.S. states still in the game, but one thing seems certain: the provinces of Quebec and Ontario won’t let the prospect of 2,500 more jobs and the accompanying tax revenue slip away without a fight.

Quebec has already sweetened the proverbial pot with another C$750 million in loan guarantees for Bombardier’s foreign customers, bringing the total to C$2.3 billion. Of course, Bombardier also wants direct R&D loans, but Investissement Quebec’s seventh increase since it started backing loans for regional jets in 1996 no doubt raised the province’s standing with its largest employer. Meanwhile, the aerospace companies located in the Montreal Foreign Trade Zone already enjoy wage subsidies through Investissement Quebec–as much as 40 percent in some cases–and 25-percent tax relief on new building construction. Bombardier plans to spend as much as $200 million for a new C Series assembly facility, according to Scott.

In Ontario, the government’s more frugal ways historically have limited its ability to compete with the famously generous Quebec. Although no one seems to want to call this a bidding war, Ontario premier Dalton McGuinty certainly feels pressure to bid aggressively for C Series production, particularly in light of waning employment at Bombardier’s Downsview plant. Ontario hopes proposed tax breaks from the city of Toronto will help soften the fiscal and political fallout from any aid package and give the city a chance against Montreal.

Meanwhile, Canadian Prime Minister Paul Martin has pledged “the necessary support to Bombardier” from the federal government. What kind of help remains unclear, however. Neither Scott nor Bombardier Aerospace communications director Jean-Paul McDonald could confirm reports that Ottawa plans to lend Bombardier at least $300 million from a proposed new fund set aside specifically for the country’s aerospace sector. In any case, the Martin government can expect protest from the conservative opposition party; even the relatively paltry C$57 million loan Technology Partnerships Canada issued for the Q400 turboprop drew a lot of fire, as did the C$87 million it lent for the CRJ700.

As the vetting process draws to a close, it now appears all the assembly candidates hail from Canada and the U.S. Scott said Bombardier’s Short Brothers subsidiary in Belfast, Northern Ireland, has fallen from contention because the company didn’t think the site could handle all the work involved, particularly if it wins a big chunk of subassembly duty there. Bombardier has applied for financial support from the UK government for Short Brothers and expects an offer in time for this month’s board meeting.

Scheduled to decide whether or not to issue authority to offer the airplane by April, the recently reorganized Bombardier board replaced two of its members when it fired CEO Paul Tellier and reinstated Laurent Beaudoin to the post in December. A new three-man office of the president includes Beaudoin, rail division chief Andre Navarri and aerospace division president Pierre Beaudoin, Laurent’s son. Scott, of course, wouldn’t speculate on how the changes might affect the C Series’ chances, but said that the younger Beaudoin has always shown a lot of enthusiasm for the project.

“My assignment was to conduct a feasibility study,” said Scott. “From the very beginning I had all the support I needed from the current and former leadership of the company, especially Pierre Beaudoin.”

Numbers on Target
In technical terms, Scott said all has progressed on schedule and that virtually none of the original performance and weight targets have proved too ambitious. Engineers still expect operating costs to run 20 percent lower than those of out-of-production airplanes in the same weight category and 15 percent better than anything under construction today–without the need for exotic technologies or an all-composite fuselage.

However, the design team has decided to cut the shell’s width from 146 inches to 141 inches in the interest of weight and performance. Still, said Scott, cabin comfort and overhead bin volume will outclass that of any airplane on the single-aisle market, offering more personal space and a wider aisle than the Boeing 737 or Airbus A320 series.

While new engines from IAE or CFM would account for roughly half of the direct operating cost benefit, a lack of competition in the C Series target market will allow Bombardier to reach its goal without the need for the all-composite fuselage many at first expected, Scott explained. “If you look at what is serving this market segment today, it’s downsized 737s and downsized Airbus products, or an upsized regional aircraft like the Embraer [195], which is four abreast, versus our five-abreast,” he said. “If there is an airplane that’s designed for this market segment today, it’s the [now defunct] 717. (See 'End of the line for Boeing 717')

Scott also frowns on the 195’s smaller overhead bins, its longer, narrower tube and the field-performance limitations of an airplane with a fuselage longer than that of an A320. “A four-abreast airplane is probably the optimal airplane up to somewhere in the 90-seat range,” said Scott. “And then you move into where five abreast becomes optimal up to 140 seats.”

In fairness, discount-fare phenom JetBlue, Air Canada and Panama’s COPA apparently don’t think Scott’s 90-seat limit applies to the 100-seat Embraer 190. Together, they’ve placed firm orders for 150 airplanes. While Scott and others assert that the extra two rows of passenger seats in the 195 goes too far, Embraer argues that the lack of a middle seat and the lighter airplane’s cost benefits outweigh the drawbacks.

Holding as many as 135 passenger seats and flying as far as 3,250 nm, the larger
C Series airplane would take Bombardier into a category fully distinct from that occupied by the 195, however. Only the standard 110- to 115-seat version–designed for a range of 1,800 nm–might conceivably compete with the Embraer product. But Scott insists that major airlines looking to replace their aging DC-9s, Fokker 100s and early-generation Boeing 737s need a family capable of transcontinental flying–something Embraer doesn’t yet offer.

Of course, no one knows for sure how the market will respond, and a $2 billion project aimed at a largely unproven market carries with it a lot of risk for shareholders, governments and the suppliers expected to carry another third of the financial burden. But the “saturation” of the traditional market for regional jets has shrunk the CRJ backlog to its lowest levels since 1999, leaving the aerospace division to ponder a grimly “downsized” future. Happily for investors and workers alike, the Bombardier board will end the suspense in two months, when it sends a clear signal about its commitment to the commercial aircraft business for decades to come.