Bombardier Inc. “is distorting the competitiveness of the market” by selling its CSeries at a steep discount, a fact that has the Brazilian government “very worried,” says the newly appointed CEO of rival Embraer SA.
Ever since Bombardier won an order for 75 CSeries aircraft from Delta Air Lines Inc. in April, Embraer has charged that it was only able to do so by offering a cut-rate price, secure in the knowledge that it has US$1 billion in funding lined up from the Quebec government and another US$1 billion potentially on the way from the federal government.
Incoming CEO Paulo Cesar de Souza e Silva said he believes Bombardier sold the CSeries to Delta below cost, although he isn’t certain.
“It’s very concerning that we have a manufacturer that is distorting the competitiveness of the market by offering economic conditions that are below cost, most likely,” Silva said in an interview with the Financial Post from São Paulo.
“We are no longer competing with a private entity, we are competing against a government, and it is very challenging to compete with governments.”
Silva, who is currently Embraer’s president of commercial aviation, was named chief executive in a surprise announcement Thursday. He will replace outgoing CEO Frederico Fleury Curado in July.
The unexpected transition comes at a pivotal time for Embraer, which just held the first test flight for its new family of E2 jets last month. The company has been struggling to win orders, and lost out on two big ones earlier this year when United Continental Holdings Inc. bought aircraft from Boeing Co. and Delta chose to go with Bombardier.
According to Bloomberg Intelligence, Embraer sold no commercial jets in the first quarter of the year, although it did sell 30 E-jets to a subsidiary of Alaska Air Group Inc. in April.
Silva has raised the possibility of challenging the legality of Bombardier’s government aid at the World Trade Organization (WTO), a move that would have to be supported by the scandal-ridden Brazilian government.
Silva said Embraer has met with Brazilian officials to raise its concerns about Bombardier’s Delta deal and believes they are receptive.
“They are very worried, the government is very worried about the situation and the government is very supportive of Embraer,” he said.
“We want to compete on product, efficiency of the product, cost of the product, on services, on after-sales support and things like that. We don’t want to compete against governments, which is the case here.”
Bombardier has shrugged off Embraer’s complaints, pointing out that the company has not yet received the promised contribution from Quebec, which is still negotiating the terms of its investment, and is still in talks with Ottawa.
“We’re fully compliant and not concerned with the competition’s conjecture,” spokeswoman Marianella de la Barrera said in an email.
Previously, Barrera suggested that Embraer might be bitter about the outcome of the Delta sale, as it admittedly competed “very aggressively” for the order with its E190 jet.
“Delta has said very publicly that they selected the CSeries on the merit of the aircraft being the best technology out there, so that’s how we won the deal. I think that’s a little bit of a hard pill for (Embraer) to swallow,” she said last month.
But Silva said it’s the promise of government funding that allowed Bombardier to win the Delta deal.
“It doesn’t matter that the (government) funds are not yet there, what matters is that because of the promised support Bombardier has been able to be very aggressive in the market and give conditions that change the dynamics of the competition,” he said.
We want to compete on product, efficiency of the product, cost of the product, on services, on after-sales support and things like that.
In the same way that Boeing and Airbus Group SE compete fiercely in the larger end of the aircraft market, Bombardier and Embraer are close rivals in the narrow-body jet market.
The two have battled over government subsidies at the WTO before. A lengthy dispute in the late ‘90s resulted in both sides winning the right to retaliate with countermeasures in 2002.
Silva said the narrow-body aircraft market — which includes both the E-jet and the CSeries — is the most competitive it’s ever been, and that’s why it’s important that all players are on a level playing field.
“We are very well placed with the E2 to compete against the CSeries,” he said. “We are not afraid at all to compete in a level playing field and compare our products to the competition’s products, our services to the competition’s services.”