Boeing boss plays down C Series deal
U.S. plane maker says it’s sticking to strategy despite rivals’ tie-up
Boeing Co. chief executive Dennis Muilenburg brushed off the blockbuster partnership that will see its fiercest rival Airbus SE acquire control of Bombardier Inc.’s C Series program, and said it doesn’t plan on changing its strategic path forward.
“The discussions between Airbus and Bombardier don’t change our plans,” Muilenburg said in a conference call with analysts Wednesday after the company reported its third-quarter earnings results. We have a strong strategy in place. We’ll continue to look at our strategic alternatives but we don’t need to change the path we’re on. We’re very confident.”
Airbus is set to acquire a 50.01 per cent stake in the C Series program, while Bombardier and Investissement Quebec (IQ) will reduce their stakes from 62 and 38 per cent to 31 and 19 per cent, respectively. The deal came as the C Series program struggled to record new orders in the past 18 months, and as it faced the prospect of massive 300-percent permanent duties on U.S. imports of the jet because of a trade complaint launched by Boeing.
Part of the new partnership includes a plan to produce U.S.bound C Series jets at an Airbus facility in Alabama, a move both companies are hoping will allow Bombardier to potentially avoid the punishing duties imposed by the Commerce Department.
However, Muilenburg said the Alabama production line doesn’t change Boeing’s position on the trade dispute, or the fact that the trade matter needs to be addressed, stressing that all companies must play by the same rules.
“These are not actions that are targeted at customers or countries,” he said. “These are matters of fair trade. We are happy to compete; we just want everybody to play by the same rules.”
Boeing is in the midst of ramping up production of its narrowbody 737 jets and says it doesn’t intend on adjusting that strategy in light of the C Series developments. It is currently producing 47 aircraft a month, and plans on stepping up production to 52 a month in 2018 and 57 a month in 2019.
Some analysts have speculated that the C Series tie-up could see Boeing team up with Brazilian jet maker Embraer, which produces a smaller aircraft that competes in the same market as the CSeries jet.
“This greatly increases the likelihood of a stronger Boeing-Embraer alliance as a response,” said Richard Aboulafia, aviation analyst and vice-president of Teal Group, in a recent note after Bombardier announced its deal with Airbus.
While Muilenburg didn’t directly answer an analyst’s question about whether the company would pursue a similar joint venture to compete with the new C Series partnership, he said mergers, acquisitions and partnerships that complement Boeing ’s strategy are options moving forward.
Bombardier reportedly reached out to Boeing in the hopes of striking a deal that would see the U.S.based company acquire a stake of the C Series program.
According to a Reuters report citing five sources familiar with the matter, after Bombardier talks with Boeing failed, the Canadian government encouraged the Montreal-based company to make a deal with Airbus to thwart a potential venture with Chinese investors.
Meanwhile, Moody’s Investors Service downgraded Bombardier’s rating from B2 to B3, saying the company is “constrained by its significant financial leverage, execution risk on its new aircraft program, increasing competitiveness in its aircraft and rail transport business, and an uncertain ability to generate positive free cash flow in 2018.”
Bombardier said in a statement it “strongly disagrees” with the “illfounded” downgrade in a statement Wednesday.
“It does not accurately reflect the value of our partnership with Airbus and is completely disconnected with the market reaction, which has been overwhelmingly positive,” the company said.