Industrials

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

What doesn't kill you, makes you stronger. If there's truth in that old maxim, Boeing Co. should be worried about the outcome of its war on Bombardier Inc.

The Canadian maker of trains, planes and transport systems is seeking investors and may consider selling parts of its aerospace business, Eyk Henning, Manuel Baigorri and Frederic Tomesco of Bloomberg News reported Monday, citing people familiar with the matter. It may sell its CRJ and Q400 aircraft units and consider a tie-up with Airbus SE or other aerospace companies, the people said.

Boeing hasn't shied away from this fight. Its claims that Bombardier's C Series jet received unfair subsidies from the governments of Canada and Quebec resulted in the U.S. Department of Commerce slapping import duties of almost 300 percent on the jets this month. As Gadfly's Chris Bryant has written, Boeing's complaints, however justified, reek of hypocrisy in an industry that has benefited from multiple forms of state largess almost since its inception.

Light Aircraft
Bombardier's C Series jet isn't close to challenging the 737 and A320 in the narrow-body market
Source: Bloomberg Intelligence

The simmering trade war has already led to one own goal, with Canadian Prime Minister Justin Trudeau vowing not to buy Boeing military aircraft unless the case is dropped. The greater risk, though, is that the dispute could be pushing two of the U.S. aircraft maker's emerging rivals into a deepening partnership that will make both stronger.

The C Series isn't the only attempt to take on the Boeing-Airbus duopoly in single-aisle jets, after all. Commercial Aircraft Corp. of China Ltd., or Comac, is planning to carry out soon the third test flight of its C919, an indigenous jet that would compete head-to-head with the 737 and A320.

The strengths and weaknesses of the two companies are largely complementary. The C Series has innovative technology and all the type certifications necessary to sell around the world, but sales have been sluggish. The C919, on the other hand, has a guaranteed domestic market but uses outdated technology, and Comac's record of getting type certificates is dismal.

It's probably too late now to smush the two troubled programs together, but there's plenty of opportunity for deeper collaboration. The companies first signed a deal covering areas such as joint procurement for the C919 and C Series six years ago and have since carried out further partnerships on subjects such as sales and marketing, training and onboard systems. About a quarter of the market for the C-series will come from China, Bombardier's then-aerospace chief Guy Hachey told a 2014 investor call. A direct investment has long been mooted in the media, although the companies haven't announced anything beyond alliances to date.

Treasure Fleets
For all the talk of a crackdown, there's been plenty of outbound M&A from China this year
Source: Bloomberg

For all that China has been cracking down on the outbound takeover activity of private companies over the past year, dealmaking as a whole has been doing rather well in 2017. The $36 billion of overseas bids by Chinese companies in July made it the third-strongest month on record, after October and February of last year.

It would hardly be a departure from high-level national objectives for state-owned Comac to make an investment in a high-quality Western aerospace company -- especially if doing so had the effect of punishing the U.S.'s doubling down on its own variety of industrial policy.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Bombardier's C Series is slightly smaller, with configurations ranging from around 100 seats to 160 seats rather than the 150 seat-to-200 seat range in which most A320 and 737 variants compete.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net