Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
The Problem In Buying New A/c: Financing  
User currently offlineQb001 From Canada, joined Apr 2000, 2053 posts, RR: 4
Posted (10 years 6 months 3 weeks 2 days 3 hours ago) and read 1858 times:

So says Paul Tellier, Bombardier's CEO.

I wrote on this forum a few weeks ago that the STAR Alliance intent to buy new planes ran into the problem of financing. My source from within Bombardier told me that this was the last problem to fix in order to close the deal.

Which bank would be crazy enough to finance AC, for example, knowing this company is virtually bankrupted???

Now Tellier is asking the government to help.
http://www.cbc.ca/cp/business/031006/b100636.html


Never let the facts get in the way of a good theory.
9 replies: All unread, jump to last
 
User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 5927 posts, RR: 34
Reply 1, posted (10 years 6 months 3 weeks 2 days 2 hours ago) and read 1811 times:

QB100:

Getting financing for the Star Alliance "deal" is in fact the first problem for Mr. Tellier to fix. Without it he cannot even get to the starting line. And you are right, a commercial bank will not touch the financing. So Mr. Tellier is trying to "bully" EDC into adding to the already extremely large (as a percentage of all loans) portfolio of CRJ aircraft that the Government agency has built up. You could almost call the EDC "Bombardier's private banker".

But aside from the financing, Bombardier has to overcome the fact that they have the least comfortable aircraft on offer to the Star Alliance. Milton, Air Canada execs and lower level staff have all acknowledged that the E170/175 combo is a far superior aircraft passenger wise. Even Bombardier staff are saying so - it is so obvious! So just on that basis the CRJ would be out of the running.

So how does Bombardier overcome this disadvantage? With price. But Bombardier has to offer their aircraft at a price that is not only better than Embraer's but better by a substantial margin to make the far less comfortable CRJ-700/900 a lot more attractive. Given Bombardier's financial situation they do not have a lot of latitude on price. Hence, the desperate need for the EDC and preferential financing.

It will certainly be interesting to see how this all ends up. But one thing is for certain - without a "hidden" Canadian Government subsidy (and political pressure on AC) there is no way that Bombardier will get part of the order.



Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
User currently offlineBeltwaybandit From United States of America, joined Mar 2003, 495 posts, RR: 0
Reply 2, posted (10 years 6 months 3 weeks 2 days 2 hours ago) and read 1792 times:

The creditworthiness of the aircraft manufacturer has no bearing at all on the viability of financing!

Maybe I'm missing your point here, but when a bank finances aircraft purchases, they are providing the financing to the airlines, who are then buying the aircraft for cash from Bombardier. The bank looks solely to the airlines for payment. The aircraft is simply collateral to secure the debt.

It is possible that Bombardier requires its own financing simply to fund continued production of the aircraft.


User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 5927 posts, RR: 34
Reply 3, posted (10 years 6 months 3 weeks 2 days 1 hour ago) and read 1769 times:

Beltwaywaybandit:

You are getting one of the points but you are missing the other.

The first point is that given Air Canada's ugly finances (plus unfunded pension liabilities) no commercial bank would lend it money to buy any aircraft (you got that one.) So Air Canada is looking to the aircraft manufacturers to provide financing.

With this in mind, Air Canada's CEO said that Bombardier was at a distinct disadvantage because it could not provide financing for their RJ's. Why? Because virtually all of Bombardier's RJ sales have been financed by the Export Development Bank (owned by the Canadian Government.) As the name of the bank says, it is an export bank, and therefore can't finance any potential RJ sale to Air Canada because that would be a "domestic" sale.

The other point is that Bombardier, while having cash on hand to finance production, is itself not in the best of financial shape (debt is one grade above junk bond status) and therefore does not have much lattitude in aggressively pricing its RJ's given the competition. Bombardier desperately needs Canadian government financing if: a) it is to have any chance on the Air Canada order, and b) at favourable rates to compensate for having the "least" aircraft for the money.

The article that is referenced in the first post explains it from Tellier's (BBD CEO) point of view.




Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
User currently offlineQb001 From Canada, joined Apr 2000, 2053 posts, RR: 4
Reply 4, posted (10 years 6 months 3 weeks 1 day 20 hours ago) and read 1729 times:

the E170/175 combo is a far superior aircraft.

Maybe; but it's still in R&D. And Embraer does not have that much money either to finance its development. Who would want to bet the future of his/her airline with an unproven a/c? Remember the Dornier 728?

On the other hand, the CRJ are flying, which give them an indisputable advantage, at least until the 170/175 gets its certification.

And as it was said, the whole issue in financing is to allow the airline to buy the planes, not subsidizing the manufacturer operations directly.

I believe the Brazilian government will eagerly finance any purchase of Embraer planes by any serious airline.

Can AC afford to buy Embraer planes instead of Bombardier's? I don't think so. But we never know...



Never let the facts get in the way of a good theory.
User currently offlineYyz717 From Canada, joined Sep 2001, 16228 posts, RR: 57
Reply 5, posted (10 years 6 months 3 weeks 1 day 20 hours ago) and read 1721 times:

The Cdn federal govt has done enough to subsidize both Bombardier and AC, both based in YUL by the way. Cdn taxpayers have had enough.

Let Bombardier and AC come to a commercial agreement without govt aid. The CRJ merits should stand on their own feet, as should AC's financial backing for a purchase. Why should my tax dollars support a commercial aircraft order?????????




Panam, TWA, Ansett, Eastern.......AC next? Might be good for Canada.
User currently offlineQb001 From Canada, joined Apr 2000, 2053 posts, RR: 4
Reply 6, posted (10 years 6 months 3 weeks 1 day 19 hours ago) and read 1689 times:

Why should my tax dollars support a commercial aircraft order?

I'm not saying it's a good idea. But if Brazil does it, why not the Canadian government?



Never let the facts get in the way of a good theory.
User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 5927 posts, RR: 34
Reply 7, posted (10 years 6 months 3 weeks 1 day 19 hours ago) and read 1687 times:

Hi Qb001:

Maybe; but it's still in R&D. And Embraer does not have that much money either to finance its development

As you can see below, the E170 is not in R&D. It has been flying for over 1.5 years and customer delieveries start this year. And the E175 is well into it's certification program.

E170 first Flight: Feb 19/02
E170 Certification:November 03 (seven a/c used)

E175 First Flight:June 14/03
E175 Certification: 2nd Qtr. 03

E190 First Fuselage Join: Sept 29/03
E190 Certification: 3rd Qtr. 05

Regarding money for development: two of 4 aircraft models are already flying (E170 & E175). Another is almost assembled E190), and the last will indeed have the money. In 2002, Embraer had sales of US$2.526 Billion, with net income of US$202 million - even with all the upfront development costs.

And yes, the CRJ-900 has indeed been flying for over a year but it has only one customer for only 25 aircraft.

Who would want to bet the future of his/her airline with an unproven a/c?

JetBlue (100 E190's + 100 option), US Airways (85 E170's + 50 options) and GECAS, SWISS, Alitalia, Cirrus and Air Caraïbes. As of June 30, 2003 the EMBRAER 170/190 family order book totals 244 firm orders and 309 purchase options.

Even though Mr. Tellier protests otherwise, the newspapers have been full of information on how Bombardier has been directly subsidized. With regards to EDC financing, the Canadian Government offers a below market interest rate that Air Canada, nor Bombardier, could get - plus, they guarantee the transaction so that there is no risk to Bombardier.



Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
User currently offlineFLYYUL From Italy, joined Jun 2000, 4953 posts, RR: 51
Reply 8, posted (10 years 6 months 3 weeks 1 day 7 hours ago) and read 1623 times:

Neil your are absolutely ridiculous.

Financing is the name of the game, Airbus does it, Boeing does it, Embraer does it.

This potential order means the world for Bombardier, and Canada as a whole. If Bombardier wins this contract, it will greatly contribute to the economy. Yes, a gain for the Montreal economy is a gain for Canada as a whole. if Canada helps to finance the deal, the spin-off's from the sales in terms of taxation revenue will be greater than the whatever is dished out.

Once again you make it seem clear that you stand against this because Bombardier is a YUL company. I am certain that if Bombardier is not based in YUL, you would gladly encourage the financing of this impending order.

There is no product that is no more internationally recognized and known than the CRJ. Perhaps there is no company in Canada that is as internationally recongized as Bombardier.

If Brazil is financing aircraft sales, Canada needs to do the same in order to be competitive. Bombardier is one of the top 3 largest Canadian exporters, for the sake of the Canadian economy, it needs to remain viable.

Mark


User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 5927 posts, RR: 34
Reply 9, posted (10 years 6 months 3 weeks 1 day 2 hours ago) and read 1578 times:

FLYYUL:

This potential order means the world for Bombardier, and Canada as a whole. If Bombardier wins this contract, it will greatly contribute to the economy.

Tellier is the master of spinning and crying... You are repeating a common misconception. In reality, a potential AC order means more for the world than for Canada:

Source of major CRJ-700/900 components:

Fuselage - Ireland
Fin - Japan
Tail Cone - Japan
Rudder - Spain
Elevator - Spain
Avionics - USA
Engines - USA
Interior - USA

Only the cockpit and wings (planks made by an outside supplier) are Canadian.

But BBD is pulling this Canadian patriotism stunt in Toronto as well, so it is not just isolated to Montreal. But look at the Toronto flagship porducts:

Global Express & Global 5000

Foward Fuselage - Ireland
Elevator - Ireland
Rudder - Ireland
Centre Fusealge - Japan
Wings - Japan
Tail Cone - France
Avionics - USA
Engines - Germany
Interiors - USA

The only major components that BBD builds are the fin/rear fuse and cockpit (not in Toronto, though, but in Montreal.

Dash8-400

Entire Fuselage - Japan
Interior - USA

Only major components that BBD builds are the cockpit and the wings.

Yes, Bombardier is one of the top exporters in Canada - but not of Canadian products - they are re-exporters of foreign products! The Canadian content is actually small. In light of the above, perhaps Bombardier should be asking the UK and Japanese governments to help them sell their aircraft instead of the Canadian taxpayer.



Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
What's The Problem In ARN? (8June) posted Thu Jun 8 2006 12:34:40 by SK601
What, Really, Is The Problem In PHL? posted Wed Oct 5 2005 14:55:55 by Richardnhsv
Computer Problem In New York Area Causes Flight De posted Wed Mar 8 2006 17:30:17 by Gritzngravee
New Airline In The Works In The UAE 's..! posted Mon Feb 20 2006 09:21:16 by Beaucaire
New Livery For The Campaign In The USA! posted Mon May 17 2004 05:06:17 by Airliner777
Out With The Old, In With The New posted Sun Apr 14 2002 20:53:16 by Blink182
Aircraft In United New Colors? posted Fri Dec 8 2006 07:24:07 by San747
B6 Vs The Legacies In Their Own Hubs posted Fri Dec 8 2006 01:16:22 by GoBlue
CLE-one Of The Safest In The Country posted Tue Nov 21 2006 15:17:40 by CLE757
Around The World In 3 Weeks With Airtours. posted Sat Oct 21 2006 16:35:56 by 9V