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Bombardier executive accuses Boeing, Airbus of protectionism

Feb. 4, 2010, Montreal - Bombardier chief executive Pierre Beaudoin is accusing Boeing (NYSE:BA) and Airbus of "protectionism'' for threatening to use anti-competitive practices to harm future sales of the Canadian aircraft manufacturer's new CSeries plane.


February 4, 2010
By The Canadian Press

In an interview with The Canadian Press, Beaudoin railed against the intention of the two aviation giants to require Bombardier to comply with a straitjacket, known as "Country Home Rule'' which they jointly established several years ago.

Under their "gentleman's'' agreement, the Export-Import Bank of the United States refrains from guaranteeing the financing of Boeing aircraft sold to European customers, while European export credit agencies do the same for Airbus aircraft destined for U.S. buyers.

If this rule was applied for Bombardier, the Quebec company could not provide the funding guarantee from Export Development Canada (EDC) to U.S. and European clients of the CSeries aircraft, which will compete with smaller models of the Boeing 737 and Airbus A320.

In addition, Bombardier's decision to add a 110- to 145-seat single-aisle plane would prevent Canadian carriers from having access to U.S. and European funding for the purchase of Boeing and Airbus.

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Beaudoin said at the World Economic Forum in Davos that he was "worried'' about the threat from the world's two largest aircraft manufacturers.

"Airbus and Boeing want to be protectionist,'' he said.

"They say: 'We will apply the Home Country Rule, we will not fund more equipment in Canada — a relatively small market — provided that you do not finance equipment in the U.S. (and Europe)'. It's a bit ridiculous.''

Bombardier's president and CEO adds the intent of Boeing and Airbus "is questionable from the standpoint of international law on competition.''

He said it was convenient for them to agree on the policy once they were established in the U.S. and Europe, and now they want to use it to prevent new players from challenging in the mainline market.

McGill University professor Karl Moore said Boeing and Airbus have been a duopoly for years.

"They do not want a competitor and are doing everything they can to slow down Bombardier,'' the Desautels Faculty of Management professor said in an interview.

"They try to create fear, uncertainty and doubt so that carriers become nervous about buying the CSeries. ''

The issue of "Country Home Rule'' is different from the dispute over the Organization for Economic Co-operation and Development's renewal of the Sector Understanding on Export Credits for Civil Aircraft.

In that case, Airbus and Boeing complained that Canada has classed the CSeries with Category 2 regional jets instead of larger Category 1 aircraft.

According to them, public funding authorized for equipment Category 2 is more advantageous than those of Category 1.

But Bombardier, citing an official OECD document, argues that funding is now equivalent for the two categories, which was not the case before 2007. For regional jets, the term of repayment is longer, but the financing cost is higher, while the reverse is true for larger aircraft.

The OECD held its first meetings in Paris earlier this week to try to reach a compromise. The goal is to reach common rules for both categories of aircraft. Canada and Bombardier said they agree with the approach.

"We want there to be one category at market rates, not rates sponsored by the country,'' said Beaudoin. (…) I want to compete based on the merits of our aircraft."

EDC officials couldn't be reached for comment.

Bombardier Aerospace insists that the dispute surrounding the financing of CSeries aircraft sales has not been the cause of slow orders so far.

The use of government loan guarantees come into play only a few months before the buyer takes possession of the aircraft, Bombardier spokesman Marc Duchesne said in an email.

Beaudoin acknowledged that airlines have not shown the "same sense of urgency'' about the CSeries as Bombardier.

But he added the manufacturer has accomplished its mission over the last year to convince potential customers that this is an "exceptional aircraft.''

Beaudoin added he's not worried about the possibility that the aircraft giants will put new engines on their 737 and A320s to better compete with the CSeries.

Changing the engines would delay the entry into service of a new "game changer'' planes because of it is a major investment to introduce a new engine on devices like the 737 or the A320, he said.

Bombardier claims the CSeries will provide fuel savings of 20 per cent compared to aircraft currently in production, thanks to Pratt & Whitney PW1000G, and the use of lighter composite materials.

The company expects to generate revenue of between US$5 billion and US$10 billion from the CSeries in the coming decades.

Bombardier shares closed Wednesday at C$5.48, down one cent on the Toronto Stock Exchange.