Bombardier strengthens Chinese sales efforts with COMAC partnership deal

Bombardier says it has strengthened the sales argument for the new CSeries jet and other aircraft by partnering with China's leading aircraft manufacturer.

Bombardier and Commercial Aircraft Corporation of China Ltd. (COMAC) signed a framework agreement Thursday that aims to ensure products offered by the two companies will totally complement each other.

Airlines prefer to have a fleet of aircraft that share common parts and features to enhance economies of scale by reducing repair, training and operating costs.

It's one of the leading arguments made by Boeing and Airbus to convince existing customers to stick with their products.

Benjamin Boehm, Bombardier's vice-president of international business, said the agreement with COMAC takes away the sales advantage that its bigger rivals have had. He added the that customers will be the biggest winners.

"That is the strongest reasons why Bombardier and COMAC are doing this," he said in interview from Beijing.

"A large airline that has a fleet of CSeries would see some benefit in buying a COMAC airplane over a Boeing or an Airbus airplane and vice versa."

The Montreal-based company and China's main civil aerospace firm will explore collaboration in marketing and customer service in an effort to help each other increase market share in both emerging and established markets.

They will also discuss possible co-operation on Bombardier's CSeries planes and COMAC's C919 model and future products.

"We believe that this collaboration will generate positive results for both the C919 and CSeries aircraft programs," Pierre Beaudoin, president and CEO of Bombardier said in a statement.

Funding from each company will be determined as projects are developed.

COMAC said combining the strengths of both companies will enhance competitiveness of their respective aircraft programs and businesses as a whole.

The deal will strengthen Bombardier's customer relationships in China, which will improve its chances of winning sales in the world's most populated and important developing economy, Boehm said.

However he said it's premature to say whether it will speed up new CSeries orders.

Cameron Doerksen of National Bank Financial said the strategic agreement could ultimately be positive for Bombardier's efforts to sell the new fuel-efficient plane in China.

It should also decrease competition between the companies on new aircraft sales and increase Bombardier's Chinese presence.

"We don't expect this agreement to result in immediate benefits for Bombardier, but it is a strategically positive development for the company," he wrote in a report.

Doerksen said there may be opportunities to collaborate on procurement, support services and marketing, even though there appears to be limited commonality in parts and systems between the CSeries and C919.

The Chinese plane will have 168 to 190 seats when it enters into service in 2016. The CSeries will have two models ranging between 110 and 149 seats, beginning the end of 2013.

Boeing has dubbed the Chinese narrowbody the most significant threat to the Airbus/Boeing duopoly that followed Boeing's acquisition of McDonnell Douglas in 1997.

The potential to jointly develop future aircraft could address a future replacement for Bombardier's existing CRJ series of regional jets by decreasing the likelihood of direct competition from COMAC, Doerksen added.

Boehm said the partnership also strengthens the regional jets of both manufacturers.

Bombardier has a long history of building regional planes and has many planes in service around the world.

COMAC's ARJ21-700 is a larger, five-seat wide plane more suited to larger markets.

"We now have opportunities to bring those two families closer together and strengthen them as well," he added.

Partnering so closely with the Chinese presents a risk that Bombardier will be developing a new competitor in five to 10 years, said Karl Moore, a professor at McGill University's Desautels Faculty of Management.

"Bombardier's view is that it's better to be in there working with them and get part of the pie than get none of the pie by staying outside," he said in an interview.

"There is absolutely a risk there but I think their strategy is the best."

He said more than 100 Chinese workers are living in Montreal helping to develop the CSeries.

Shenyang Aircraft Corp., a subsidiary of the state-owned aviation industrial entity, China Aviation Industry Corporation (AVIC), will provide the main fuselage for the CSeries.

Other companies have established similar partnerships with Chinese firms because it's the most effective way to enter that growing and important market, Moore added.

Boeing forecasts that the Chinese market will represent 14 per cent of global deliveries in the 2010-29 timeframe.

Louis Gallois, head of Airbus parent company EADS, said some kind of consolidation or partnership was required in the narrowbody market. He expects EADS to partner with Brazil's Embraer to develop a new aircraft.

The COMAC agreement comes after Bombardier, the world's third largest aircraft manufacturer after Boeing and Airbus, signed a memorandum of understanding with Chinese lessor ICBC Financial Leasing to provide up to $8 billion in financing support for Bombardier sales.

Bombardier (TSX:BBD.B) has had a relationship in China for its aircraft and trains for more than 25 years.

On the Toronto Stock Exchange, Bombardier shares closed up 12 cents to $6.53 in Thursday trading.

Read full article: The Canadian Press, April 1, 2011