Bombardier to receive British funds for CSeries exports to Korean
Britain will, for the first time, provide financial support for exports of Bombardier’s CSeries passenger jets to a major Asian airline, weeks after the Canadian plane maker won a trade dispute against its U.S. rival Boeing. The decision, experts say, signifies a power shift in the aerospace industry and is a fresh blow to Boeing in its efforts to stop exports of the aircraft to the U.S.
UK Export Finance (UKEF), Britain’s export credit agency and ministerial department of the government, will support the CSeries aircraft, which are part-built in Bombardier’s plant in Belfast, Northern Ireland, The Financial Times reported on March 9, 2018.
Although the British government has provided around £135 million ($240 million) worth of loans to the Northern Ireland plant over the years, it is the first time UKEF will back a sale of CSeries aircraft. It will help fund future deliveries of the CSeries to Korean Airlines.
Korean signed a deal with Bombardier ordering 10 CS300s in 2011, with an option for 10 more and purchase rights for a further 10. The carrier took delivery of its first jet in December 2017, becoming the first Asian operator of the aircraft, and another one is expected to be in service this year, The Globe and Mail writes.
Baroness Fairhead, UK Minister for Trade, said on March 8, 2018, that the decision to finance the sale of two CS300 aircraft to Korean Airlines in partnership with Export Development Canada (EDC), Canada’s export credit agency, would “support the global success of Bombardier’s CSeries program and its operations in Northern Ireland.”
Michael Ryan, president of Bombardier aero structures and engineering services in Northern Ireland, said the company is “proud” to have secured the “first C Series aircraft sale to an Asian airline,” adding that they “look forward to building on this success” with the backing of both UKEF and EDC, The Financial Times reported.
A new blow to Boeing, a new win for Bombardier
The news comes weeks after Bombardier was relieved from hefty U.S. import duties on the 110-to-130-seat CSeries jets when a U.S. tribunal ruled the Chicago-based Boeing had failed to prove it lost sales and revenue when Delta Airlines ordered the aircraft from the Canadian plane maker back in 2016.
On January 26, 2018, the International Trade Commission (ITC), a U.S. trade body, determined that the low prices of CSeries sold to Delta Air Lines did not harm Boeing and discarded a U.S. Commerce Department proposition to impose a near 300 percent duty on sales of the 110-to-130-seat CSeries jets for five years.
The dispute between Boeing and Bombardier raised concerns over jobs at Northern Ireland’s largest industrial plant. The Québec-based plane manufacturer employs more than 4,000 workers in Northern Ireland, a quarter of them involved in the construction of CSeries wings and fuselage. The dispute led to the UK Prime Minister Theresa May threatening a trade war with the U.S. if it imposes the hefty taxes on CSeries aircraft. The UKEF now says the financing for the jets which are being delivered to Korean Air would support jobs in Belfast, Reuters writes.
According to experts, the decision to provide financial support to Bombardier reflects a power shift in the aerospace industry, as well as UK’s ongoing interest in the CSeries program. Although Bombardier receives some UK development funding, UKEF had repeatedly turned down requests to finance CSeries exports as they partly compete with those of Airbus, the European plane maker which also employs 12,000 workers in the UK.
UKEF’s CSeries funding comes as support for Airbus remains restricted following the 2016 investigation by the UK’s Serious Fraud Office (SFO) into allegations of bribery and corruption, The Financial Times writes. Since then, no support has been given by the UKEF to Airbus. However, in February 2018, the European plane maker announced it had reached an agreement which allows the funding to resume on a case-by-case basis.
Airbus acquired a majority stake in the struggling CSeries program in 2017, potentially providing Bombardier a way out of the trade row with Boeing. Bombardier sold a 50.01 percent stake in the program to Airbus for $1, allowing the CSeries to be manufactured at the European plane maker’s plant in Alabama, U.S., for orders by American carriers, this way avoiding any U.S. tariffs. Trade unions representing Bombardier workers in the UK welcomed the deal.
For now, the amount of the financial support offered to Bombardier by the UKEF is not clear but the list price for a CS300 jet is nearly $90 million, according to various sources. However, the Korean Air orders of the CSeries aircraft, Reuters writes, means the main beneficiary of UKEF aid will be Airbus rather than Bombardier.
Meanwhile, on the other side of the Atlantic, Boeing has indicated it would sue Bombardier again if provoked to do by what it regards as unfair pricing of the CSeries jets. Boeing’s Chief Executive Dennis Muilenburg told Reuters the company was still considering whether to appeal the ITC decision to overturn CSeries duties, the deadline for which was March 12, 2018.
The dispute worsened Boeing’s relations with Canada and the UK, resulting in the Canadian government walking away from a $5.2 billion worth deal with the U.S. plane maker to buy 18 of its F/A-18E/F Super Hornets. But it seems Boeing is now trying to defuse tensions by highlighting investments in Canada and the UK.
“We are very mindful of the relationships that we have in Canada and ... we do about $4 billion of supply chain work in Canada every year,” Muilenburg said. Boeing has reportedly applied to stay in the race to supply Canada with 88 new fighter jets, a deal worth between $12.1 billion and $15.2 billion.
In July 2017, Boeing actually became an indirect recipient of UK export support itself when UKEF said it was backing two Boeing 787s to the Polish LOT Airlines, although the aid is tied mainly to Rolls-Royce engines, Reuters reports.