Based on a post from our Production Thread ( ref: viewtopic.php?p=23141981#p23132971 )

yyztpa2 wrote:

Airbus Canada Limited Partnership has the Province of Quebec as a 25% minority owner. In 2023, Airbus has the rights to buy out that share.

A story now out indicates negotiations between the Quebec Government and Airbus are underway to extend the partnership with Quebec injecting a further $200M. The story suggests that if they don't, their share will be diluted.

https://www.journaldemontreal.com/2022/ ... la-cseries

The article as represented by Google Translate also suggests IQ's "initial investment of $ 1.3 billion is no longer worth a penny" and points to a September 2021 article I can't access titled "Government accountants believe that the $1.3 billion investment in the program no longer has any value". I'm not sure what basis they have to make such a claim. An earlier post seemed to suggest that if all the $1.3B was spent without the program increasing in value one could consider the investment to have zero value. At least that's what I think it was trying to say.

One would think if the 75/25 split is to be maintained, Airbus will need to invest another $600M to keep the program going. Either that, or they would face charges of taking advantage of Quebec's taxpayers. Airbus seems to prefer a 75/25 split. They themselves are owned 25% by their host governments, and this report makes it seem that they want to sustain that ratio for Airbus Canada. I think that's wise from the company point of view for the government to have significant "skin in the game", but not so much that they can dictate policy.

All this seems to be justifying BBD's statements when they sold the program that the business plan was no longer workable and more investment would be needed. When they left the program, Airbus paid them $591M and relieved them of the burden of investing another $700M in the program that it had been required to invest as a part of the original $1 deal ( ref: https://airwaysmag.com/airlines/bombard ... -aviation/ ).

It also points out that earlier investments were politically troublesome which suggests future ones will be as well.

Overall it is not unusual for an airplane program to consume lots of cash, but we really should stop thinking of the A220 program costing Airbus $1.

The program may also lose favor in the community if they have to keep going back to the taxpayers for more cash, which was a part of BBD's downfall.

I read it a little bit differently, interpreting it as Airbus saying the program needs another investment of 800M, and if Quebec don’t pony up their 25% share of the investment, they’ll be diluted and Airbus will run it alone. Thereby also implying they’ll foot the 800M investment in full themselves.

Airbus are easily able to absorb losses on the A220 program for another 4 or 5 years; it serves a much wider purposes than “merely” adding to the bottom line. Adding to the bottom line is obviously a very clear target, but having the A220 in the Airbus portfolio is very important too. Witness the latest deal with Qantas as an example.

B777LRF wrote:

I read it a little bit differently, interpreting it as Airbus saying the program needs another investment of 800M, and if Quebec don’t pony up their 25% share of the investment, they’ll be diluted and Airbus will run it alone. Thereby also implying they’ll foot the 800M investment in full themselves.

Airbus are easily able to absorb losses on the A220 program for another 4 or 5 years; it serves a much wider purposes than “merely” adding to the bottom line. Adding to the bottom line is obviously a very clear target, but having the A220 in the Airbus portfolio is very important too. Witness the latest deal with Qantas as an example.

The ability of major corporations to absorb losses in a low interest environment is not at question, but what is at question is the A220 program's ability to make a profit. Earlier press reports have hinted they would hit rate 14 and break even in 2024, now break even is pushed out to 2026, and further investment is needed to operate the business. Lord knows if they will be back for more funding in another two years.

I don't think the QF example is a good one. Clearly they were in a highly competitive situation and had to offer a lot of concessions to flip a 737 operator. I doubt it helps the program much if at all.

Revelation wrote:

The article as represented by Google Translate also suggests IQ's "initial investment of $ 1.3 billion is no longer worth a penny" and points to a September 2021 article I can't access titled "Government accountants believe that the $1.3 billion investment in the program no longer has any value". I'm not sure what basis they have to make such a claim. An earlier post seemed to suggest that if all the $1.3B was spent without the program increasing in value one could consider the investment to have zero value. At least that's what I think it was trying to say.

Not to refute any of the figures mentionned (I don't know how to calculate the value of a program), but to add some political background: The initial investment of 1.3 B$ was made by the previous government (Quebec Liberal Party), and now the current government (Parti Québécois) is complaining about the value : 2022 is an election year.

Here’s an idea. Sell products for a profit, not a loss.

Of course, so much government interference with tax breaks and government investment/ownership in manufacturing and airline operations distorts the market and if you try to sell planes at the real fair price, you can’t “compete” and “win orders.”

Revelation wrote:

Based on a post from our Production Thread ( ref: viewtopic.php?p=23141981#p23132971 )

yyztpa2 wrote:

Airbus Canada Limited Partnership has the Province of Quebec as a 25% minority owner. In 2023, Airbus has the rights to buy out that share.

I believe the buy-out option is actually 2026, not 2023, moved out three years when Bombardier sold its final stake.

https://www.forbes.com/sites/marisagarc ... c8bb1783b3

I guess it's reasonable to think the Govt of Quebec would be on the hook for its 25% share of on-going losses, and for new capital investments - but I don't recall seeing that stated explicitly. When BBD sold its final stake it also walked away from what had been about $700 million in further obligations.

it's fair. if Airbus is going to invest another 600m, then it's partner who owns a 25% stake must match it with an investment of 200m.

I read it as the program needs a cash infusion of 800m to be profitable by 2026. An adjustment of expectations. Quebec is being given an opportunity to pull out now if they feel like it's just throwing good money after bad. (of course I don't understand what the 2023/2026 dates mean? are they not allowed to bail until that point? I'm not educated on those specifics...)

But as others have commented... Airbus could not have developed this plane for what they've spent so far... If they get the cost of production down (and they will), then it will be a good investment.

If Quebec pulls out... does that give Airbus impetus to shift more (all) of it's production to Alabama? Yes, presently it's just a final assembly plant... but.... Mild winter, lower cost of labor, synergies with the A320 program located there.... could they relocate all of it there? would they?

Something to keep in mind is the source. Journal de Montreal ain't exactly top notch journalism. And leading with their (editorial) judgement that the original investment is totally worthless should be the tell of their slant here....

Revelation wrote:

I don't think the QF example is a good one. Clearly they were in a highly competitive situation and had to offer a lot of concessions to flip a 737 operator. I doubt it helps the program much if at all.

And you know this for a fact since you took part in the negotiations, or have access to the specific details of the competing offers? Or are you (clearly) just voicing an opinion?

Well I suppose some peoples enthusiasm for the A220 needs to be counter balanced....

FiscAutTecGarte wrote:

If Quebec pulls out... does that give Airbus impetus to shift more (all) of it's production to Alabama? Yes, presently it's just a final assembly plant... but.... Mild winter, lower cost of labor, synergies with the A320 program located there.... could they relocate all of it there? would they?

As part of the deal to acquire the program, Airbus guaranteed a certain level of employment in Quebec for a given number of years. So they ain't moving. They've also put in some good money on infrastructure with the pre-FAL. I see no benefit in writing off all that to move to Alabama.

Also, politically, Airbus has to have seen how Boeing screwing over the CSeries has impacted them in Canada. Boeing is not out of the CA$15-19 billion fighter competition. And its treatment of the CSeries has probably played some role. Before that was fiasco, the current government was scheming to backdoor them a sole-source contract. Why would Airbus want to be in the same doghouse for little to no gain?

Lastly, I get the sense that many Americans and Europeans just don't understand how much of a huge aerospace sector is located in Montreal. It's not exactly some backwater town with Airbus assembling 220s in a shed. There's a lot more there than Mobile will have for a long time to come.

FiscAutTecGarte wrote:

it's fair. if Airbus is going to invest another 600m, then it's partner who owns a 25% stake must match it with an investment of 200m.

I read it as the program needs a cash infusion of 800m to be profitable by 2026. An adjustment of expectations. Quebec is being given an opportunity to pull out now if they feel like it's just throwing good money after bad. (of course I don't understand what the 2023/2026 dates mean? are they not allowed to bail until that point? I'm not educated on those specifics...)

I'd have to ask what Airbus and Quebec are getting for an additional $800 million. Are they actually buying tooling and equipment necessary to increase production rates, or is the $800 million largely just going to cover ongoing losses?

TObound wrote:

Lastly, I get the sense that many Americans and Europeans just don't understand how much of a huge aerospace sector is located in Montreal. It's not exactly some backwater town with Airbus assembling 220s in a shed. There's a lot more there than Mobile will have for a long time to come.

It may be a relatively (for Canada/Quebec) large sector, but it isn't a particularly productive or profitable sector. After selling rail, BRP, and the C Series, BBD is now a pure business jet play. It will take a decade to see if they're making the needed investments to yield competitive and profitable product lines, but I wouldn't give them my investment: BBD has messed up everything they have touched for the last two decades. The have the reverse Midas touch, continually enabled by Quebecois politicians.

When push comes to shove the Quebec government will reluctantly invest the extra $200M (Canadian, or US?) to keep Airbus happy and the Mirabel A220 FAL operating for years to come. There will be the usual media rant about the A220 program's ups & downs for Quebec, but cooler heads will prevail because high tech/high salary jobs of this magnitude are hard to come by:

https://montrealgazette.com/business/lo ... put-climbs

MIflyer12 wrote:

I'd have to ask what Airbus and Quebec are getting for an additional $800 million. Are they actually buying tooling and equipment necessary to increase production rates, or is the $800 million largely just going to cover ongoing losses?

Could it be for a program launch? The -500 would likely be much more than 800M (nor does the timing align) but would that sum be reasonable for the launch development for the -300LR?

MIflyer12 wrote:

FiscAutTecGarte wrote:

it's fair. if Airbus is going to invest another 600m, then it's partner who owns a 25% stake must match it with an investment of 200m.

I read it as the program needs a cash infusion of 800m to be profitable by 2026. An adjustment of expectations. Quebec is being given an opportunity to pull out now if they feel like it's just throwing good money after bad. (of course I don't understand what the 2023/2026 dates mean? are they not allowed to bail until that point? I'm not educated on those specifics...)

I'd have to ask what Airbus and Quebec are getting for an additional $800 million. Are they actually buying tooling and equipment necessary to increase production rates, or is the $800 million largely just going to cover ongoing losses?

TObound wrote:

Lastly, I get the sense that many Americans and Europeans just don't understand how much of a huge aerospace sector is located in Montreal. It's not exactly some backwater town with Airbus assembling 220s in a shed. There's a lot more there than Mobile will have for a long time to come.

It may be a relatively (for Canada/Quebec) large sector, but it isn't a particularly productive or profitable sector. After selling rail, BRP, and the C Series, BBD is now a pure business jet play. It will take a decade to see if they're making the needed investments to yield competitive and profitable product lines, but I wouldn't give them my investment: BBD has messed up everything they have touched for the last two decades. The have the reverse Midas touch, continually enabled by Quebecois politicians.

The new pre-FAL is not for for free to start with.
What evidence you have that "it isn't a particularly productive or profitable sector" ??? Is the Quebec area limited to BBD and Airbus ? Simple no ! Bell Helicopter Textron, CAE, Pratt & Whitney are present for example. And than we have this :

https://www.ge.com/news/press-releases/ge-aviation-opens-global-robotics-automation-and-instrumentation-rd-centre-bromont

The Bromont facility is one of the most productive global sites operated by GE Aviation

And there are other players like Rolls Royce , Stelia and Thales. Do you really believe they all are presented in that area to loose money ?

https://www.montrealinternational.com/en/keysectors/aerospace/

FLALEFTY wrote:

When push comes to shove the Quebec government will reluctantly invest the extra $200M (Canadian, or US?) to keep Airbus happy and the Mirabel A220 FAL operating for years to come. There will be the usual media rant about the A220 program's ups & downs for Quebec, but cooler heads will prevail because high tech/high salary jobs of this magnitude are hard to come by:

https://montrealgazette.com/business/lo ... put-climbs

I'm Canadian and very much a free markets thinker. In other words in Canada - a very rare person IMO.

On one hand I think Quebec should do this as it's good for the future of Canada to maintain employment in this sector and it appears that they may actually get a return on this at some point as ultimately I think the A220 will be very successful. On the other hand I really dislike the cherry picking of industries and the amount of support that has gone to industries like Aerospace and Automotive.

I would prefer Government focus on making the whole economy more competitive and position it best for the future.

We have spent billions on supporting manufacturing jobs. Unless they are still doing a lot of the design work in Montreal (and they actually launch an A220-500) they won't be saving a lot of high tech/high salary jobs - for the most these are basic assembly jobs, which eventually will be replaced more and more by robots.

This is $200 Million to support 500 new jobs or $400,000 per job. Where is my $400,000?

I would be a lot happier if they spent a few billion on radically increasing the number of High tech/Engineering students we crank out of our universities with one proviso that if you take advantage of our highly subsidized education system and leave Canada within say ten years you have to pay back the actual cost of that education. A lot of our high tech Graduates that cost us $200,000 (but the students actually only pay about $40,000 for the degree), end up in the states.

In general Canada has punched well above its weight on how much our people have contributed to tech and aerospace.

We start cranking out thousands of new engineers/tech people from our Universities per year(and there is a real financial penalty for them to leave) and the World's leading companies will see that and set up Subsidiaries in Canada to take advantage of that talent - no tax incentives needed - they will go where the talent is.

That will create the high tech/high paying jobs Canada needs.

morrisond wrote:

FLALEFTY wrote:

When push comes to shove the Quebec government will reluctantly invest the extra $200M (Canadian, or US?) to keep Airbus happy and the Mirabel A220 FAL operating for years to come. There will be the usual media rant about the A220 program's ups & downs for Quebec, but cooler heads will prevail because high tech/high salary jobs of this magnitude are hard to come by:

https://montrealgazette.com/business/lo ... put-climbs

I'm Canadian and very much a free markets thinker. In other words in Canada - a very rare person IMO.

On one hand I think Quebec should do this as it's good for the future of Canada to maintain employment in this sector and it appears that they may actually get a return on this at some point as ultimately I think the A220 will be very successful. On the other hand I really dislike the cherry picking of industries and the amount of support that has gone to industries like Aerospace and Automotive.

I would prefer Government focus on making the whole economy more competitive and position it best for the future.

We have spent billions on supporting manufacturing jobs. Unless they are still doing a lot of the design work in Montreal (and they actually launch an A220-500) they won't be saving a lot of high tech/high salary jobs - for the most these are basic assembly jobs, which eventually will be replaced more and more by robots.

This is $200 Million to support 500 new jobs or $400,000 per job. Where is my $400,000?

I would be a lot happier if they spent a few billion on radically increasing the number of High tech/Engineering students we crank out of our universities with one proviso that if you take advantage of our highly subsidized education system and leave Canada within say ten years you have to pay back the actual cost of that education. A lot of our high tech Graduates that cost us $200,000 (but the students actually only pay about $40,000 for the degree), end up in the states.

In general Canada has punched well above its weight on how much our people have contributed to tech and aerospace.

We start cranking out thousands of new engineers/tech people from our Universities per year(and there is a real financial penalty for them to leave) and the World's leading companies will see that and set up Subsidiaries in Canada to take advantage of that talent - no tax incentives needed - they will go where the talent is.

That will create the high tech/high paying jobs Canada needs.

Good take! Here are my thoughts:

We have similar stuff going on here in Florida where mega-millions of our tax dollars are sacrificed in bribes to obtain less-productive and riskier business opportunities: Everything from those dreaded call centers (who keep my phone's spam filter busy), to out-of-state convenience store chains (who were planning to open stores in Florida anyway), to venture capitalists promising factories that may turn out the long-promised, all-electric, self-flying taxi (which is always just 5 years away!), etc, so I understand your concerns. I don't like the government being so far in the loop, but its just the way government-business relationships have evolved (or devolved?) and it doesn't matter if that government is Canada, or France, or China, or the USA.

What's at stake for Quebec is interesting: 1) Don't invest more and Airbus may pull the A220 program out of Mirabel. 2) Spend the tax dollars to keep a production program that could potentially run for over 20 years, and possibly, expand in product scope (A225?). While the A220 program had a tough gestation (nearly killing its parent), it now represents the state-of-the-art of narrow body airliner designs and is proving to be very successful in operations with its airline customers. I think it will be a wise investment.

FLALEFTY wrote:

morrisond wrote:

FLALEFTY wrote:

When push comes to shove the Quebec government will reluctantly invest the extra $200M (Canadian, or US?) to keep Airbus happy and the Mirabel A220 FAL operating for years to come. There will be the usual media rant about the A220 program's ups & downs for Quebec, but cooler heads will prevail because high tech/high salary jobs of this magnitude are hard to come by:

https://montrealgazette.com/business/lo ... put-climbs

I'm Canadian and very much a free markets thinker. In other words in Canada - a very rare person IMO.

On one hand I think Quebec should do this as it's good for the future of Canada to maintain employment in this sector and it appears that they may actually get a return on this at some point as ultimately I think the A220 will be very successful. On the other hand I really dislike the cherry picking of industries and the amount of support that has gone to industries like Aerospace and Automotive.

I would prefer Government focus on making the whole economy more competitive and position it best for the future.

We have spent billions on supporting manufacturing jobs. Unless they are still doing a lot of the design work in Montreal (and they actually launch an A220-500) they won't be saving a lot of high tech/high salary jobs - for the most these are basic assembly jobs, which eventually will be replaced more and more by robots.

This is $200 Million to support 500 new jobs or $400,000 per job. Where is my $400,000?

I would be a lot happier if they spent a few billion on radically increasing the number of High tech/Engineering students we crank out of our universities with one proviso that if you take advantage of our highly subsidized education system and leave Canada within say ten years you have to pay back the actual cost of that education. A lot of our high tech Graduates that cost us $200,000 (but the students actually only pay about $40,000 for the degree), end up in the states.

In general Canada has punched well above its weight on how much our people have contributed to tech and aerospace.

We start cranking out thousands of new engineers/tech people from our Universities per year(and there is a real financial penalty for them to leave) and the World's leading companies will see that and set up Subsidiaries in Canada to take advantage of that talent - no tax incentives needed - they will go where the talent is.

That will create the high tech/high paying jobs Canada needs.

Good take! Here are my thoughts:

We have similar stuff going on here in Florida where mega-millions of our tax dollars are sacrificed in bribes to obtain less-productive and riskier business opportunities: Everything from those dreaded call centers (who keep my phone's spam filter busy), to out-of-state convenience store chains (who were planning to open stores in Florida anyway), to venture capitalists promising factories that may turn out the long-promised, all-electric, self-flying taxi (which is always just 5 years away!), etc, so I understand your concerns. I don't like the government being so far in the loop, but its just the way government-business relationships have evolved (or devolved?) and it doesn't matter if that government is Canada, or France, or China, or the USA.

What's at stake for Quebec is interesting: 1) Don't invest more and Airbus may pull the A220 program out of Mirabel. 2) Spend the tax dollars to keep a production program that could potentially run for over 20 years, and possibly, expand in product scope (A225?). While the A220 program had a tough gestation (nearly killing its parent), it now represents the state-of-the-art of narrow body airliner designs and is proving to be very successful in operations with its airline customers. I think it will be a wise investment.

Personally - It seems to that Airbus doesn't want Quebec to invest. I think they know the program will eventually make money and if Quebec maintains its ownership position by contributing another $200 Million that just means it will cost Airbus more to eventually buy them out, as it will be some premium on top of the $200million.

I doubt it will be pulled anytime soon - but I also doubt that any future Quebec involvement will be much more than bolting them together. The A220-500 most likely won't be designed in Montreal.

However as per their partnership agreement they have to make the offer for them to continue as a 25% partner until they are ready to pull the trigger and buy them out. Which may not be a stupid either right now.

ikramerica wrote:

Here’s an idea. Sell products for a profit, not a loss.

Of course, so much government interference with tax breaks and government investment/ownership in manufacturing and airline operations distorts the market and if you try to sell planes at the real fair price, you can’t “compete” and “win orders.”

One could always argue that commercial aircraft shouldn't need to be subsidised by massive government defence programmes. Indeed, airlines could equally offer a valid argument regarding the same 'difficult to compete' aspect against other airlines receiving special government 'protection' by declaring alleged bankruptcy when it is clearly nothing of the sort.

Nothing irregular.

Airbus is investing in reducing producing costs, boosting sales and presumably launching the 500.

If they don't make the call on all investors, when it comes to buy out time, Airbus will pay them out based on a higher valuation, effectively funded by Airbus, flowing from their risks and vision.

So they are making the call. Realistically, the other investors have served their purpose, and now is the time to break free of constraints, not only in respect to royalties and funding, but also domicile, production and employment. Also gives 2026 flexibility in 2022.

When it comes to Airbus asking Quebec for more money to be invested in the A220 I think Airbus is playing a smart political game. Quebec is going into a provincial election this fall nows the time to ask Legault for further investments or Airbus Canada can endorse the candidate that will. With Legault ties also to the Canadian aviation sector being a cofounder in Transat I don't see any way Legault doesn't put the investment in.

smartplane wrote:

Nothing irregular.

Airbus is investing in reducing producing costs, boosting sales and presumably launching the 500.

If they don't make the call on all investors, when it comes to buy out time, Airbus will pay them out based on a higher valuation, effectively funded by Airbus, flowing from their risks and vision.

So they are making the call. Realistically, the other investors have served their purpose, and now is the time to break free of constraints, not only in respect to royalties and funding, but also domicile, production and employment. Also gives 2026 flexibility in 2022.

Nothing irregular, other than a program that was sold as a $1 purchase is costing a lot more than $1, and it's break-even point is sliding out to the right.

FLALEFTY wrote:

When push comes to shove the Quebec government will reluctantly invest the extra $200M (Canadian, or US?) to keep Airbus happy and the Mirabel A220 FAL operating for years to come. There will be the usual media rant about the A220 program's ups & downs for Quebec, but cooler heads will prevail because high tech/high salary jobs of this magnitude are hard to come by:

https://montrealgazette.com/business/lo ... put-climbs

I think it's relatively easy for governments to get taxpayer support for such projects (witness Airbus being over 25% government owned, Boeing getting tax breaks, and both benefiting from COVID relief programs) but IMO there is a risk of going back to the well too many times and losing public support. BBD wore out its welcome doing this, hopefully Airbus doesn't end up in a similar situation, yet the article indicates the mooted A220 stretch would require "significant investment" with presumably 25% coming from the taxpayers.

Overall, it suggests that there is still a problem with A220 hitting financial goals, and this could limit the program's future growth.

It is not "taxpayers money". It is a well-runned investment fund that invests in a broad portfolio of stocks in order to get a good return on capital. Some investments are higher risks than others.

Among the world's largest investors are public sector funds. For example, a Norwegian fund owns a couple prosent in Facebook, Apple, Microsoft, Tesla, Alphabet (google), Amazon, Samsung etc. This doesn't mean these companies have "taxpayers money".

The same investment fund (Norwegian government) also owns 1% of GE. Here is a full list of what this fund owns: https://www.nbim.no/no/oljefondet/inves ... s/equities

There is probably a list what the Quebec fund owns as well.

Revelation wrote:

FLALEFTY wrote:

When push comes to shove the Quebec government will reluctantly invest the extra $200M (Canadian, or US?) to keep Airbus happy and the Mirabel A220 FAL operating for years to come. There will be the usual media rant about the A220 program's ups & downs for Quebec, but cooler heads will prevail because high tech/high salary jobs of this magnitude are hard to come by:

Overall, it suggests that there is still a problem with A220 hitting financial goals, and this could limit the program's future growth.

You seem quite pessimistic on the A220. None of us are party to the financials of the program and the true objectives, all we can do is allow for it to unfold. I on the other hand am quite optimistic about the program and it's future potential. It would be interesting if we could be a fly on the wall in the Airbus boardroom to know what the $800M will to allocated to besides the obvious guesses such as cost reduction, production ramp up, A225,etc,.

It takes capital investment to grow any business that I've ever been involved with. This is no different.

I despise government involvement in any industry as much as anybody but where do you start unwinding it?
Why not start with the billions that the hydrocarbon and automotive industries in Canada suck out of taxpayers (or government debt) every year and get to aerospace later?
It is a complex issue is my point.

LaunchDetected wrote:

Revelation wrote:

The article as represented by Google Translate also suggests IQ's "initial investment of $ 1.3 billion is no longer worth a penny" and points to a September 2021 article I can't access titled "Government accountants believe that the $1.3 billion investment in the program no longer has any value". I'm not sure what basis they have to make such a claim. An earlier post seemed to suggest that if all the $1.3B was spent without the program increasing in value one could consider the investment to have zero value. At least that's what I think it was trying to say.

Not to refute any of the figures mentionned (I don't know how to calculate the value of a program), but to add some political background: The initial investment of 1.3 B$ was made by the previous government (Quebec Liberal Party), and now the current government (Parti Québécois) is complaining about the value : 2022 is an election year.

As a point of order: Quebec government is not Parti Québécois, it is Coalition Avenir Québec.

http://www.assnat.qc.ca/fr/deputes/lega ... index.html

Revelation wrote:

smartplane wrote:

Nothing irregular.

Airbus is investing in reducing producing costs, boosting sales and presumably launching the 500.

If they don't make the call on all investors, when it comes to buy out time, Airbus will pay them out based on a higher valuation, effectively funded by Airbus, flowing from their risks and vision.

So they are making the call. Realistically, the other investors have served their purpose, and now is the time to break free of constraints, not only in respect to royalties and funding, but also domicile, production and employment. Also gives 2026 flexibility in 2022.

Nothing irregular, other than a program that was sold as a $1 purchase is costing a lot more than $1, and it's break-even point is sliding out to the right.

Everyone knew it'd cost Airbus more than $1.
But then again, how much have they spent so far vs. how much developing such an aircraft would have cost? In the end, Airbus will come on top of this program; they take years to recoup costs.

Revelation wrote:

FLALEFTY wrote:

When push comes to shove the Quebec government will reluctantly invest the extra $200M (Canadian, or US?) to keep Airbus happy and the Mirabel A220 FAL operating for years to come. There will be the usual media rant about the A220 program's ups & downs for Quebec, but cooler heads will prevail because high tech/high salary jobs of this magnitude are hard to come by:

https://montrealgazette.com/business/lo ... put-climbs

I think it's relatively easy for governments to get taxpayer support for such projects (witness Airbus being over 25% government owned, Boeing getting tax breaks, and both benefiting from COVID relief programs) but IMO there is a risk of going back to the well too many times and losing public support. BBD wore out its welcome doing this, hopefully Airbus doesn't end up in a similar situation, yet the article indicates the mooted A220 stretch would require "significant investment" with presumably 25% coming from the taxpayers.

Overall, it suggests that there is still a problem with A220 hitting financial goals, and this could limit the program's future growth.

You make some good points.

In 2018, Airbus took over the BCS program in a time of crisis: Pratt-Whitney had been struggling to get their GTF engines for the BCS to meet expectations. The order book was shaky, best revealed when BBD agreed to sell 75 BCSs to Delta for less than the cost to make them. Boeing's dumping charges (egged on by the Trump Administration) nearly scuttled the Delta order and cost BBD millions in legal fees to defend. Overall, BBD was teetering close to bankruptcy due to the high BCS program development costs and over-diversification into other businesses. Meanwhile, a "brain-drain" was caused when large group of BCS program engineers bolted (or were laid off) during the turbulent time just before Airbus came to the rescue.

In a remarkably short period of time Airbus brokered a deal with BBD to take over the program and the Quebec government to keep it in Mirabel; went to work to fix the expensive program supply chain they inherited; started an A220 assembly line in Mobile to appease the Trump Administration (and increased production rates in the process); re-branded the program to fit in with their other corporate families of airliners; and won key new orders from Air France, JetBlue and Breeze. However, even with these successes, it is not surprising that the program's milestone to profitability has nudged a couple of years to the right.

WayexTDI wrote:

Everyone knew it'd cost Airbus more than $1.
But then again, how much have they spent so far vs. how much developing such an aircraft would have cost? In the end, Airbus will come on top of this program; they take years to recoup costs.

Most of the risk was taken out of the project, they bought a certified airframe that was in production. They add their global support and marketing networks, and production and supply chain management into the mix it will be a successful long term investment for them.

This also adds diversity and new capabilities that could work its way back in other products, for example the wing production technique I could see being used on the updated A320.

9252fly wrote:

You seem quite pessimistic on the A220. None of us are party to the financials of the program and the true objectives, all we can do is allow for it to unfold. I on the other hand am quite optimistic about the program and it's future potential. It would be interesting if we could be a fly on the wall in the Airbus boardroom to know what the $800M will to allocated to besides the obvious guesses such as cost reduction, production ramp up, A225,etc,.

I don't think I'm pessimistic, I think I'm realistic. I get the feeling some people have the same "drug like rush" that Richard Aboulafia famously ascribed to people's treatment of the 787. I think it will be a success, just like 787 became, but just not on the same time line other people are projecting.

As for some objectives, we can go on what has been recently said regarding the A220 in general and the A220-500 in particular.

From Jan 10th:

With the “very aggressive” ramp-up of A220-300 and -100 production among Airbus’s priorities, Scherer says the question of stretching the aircraft is “really not an imminent decision upon us”.

He reiterates that the A220 is on a “great trajectory of success” and a stretch is a “natural evolution”, adding that the need to consider it “will come”.

“There is no precise timeline,” he says. “It will come over time, but it’s not an agenda item for near-term decisions.”

Ref: https://www.flightglobal.com/air-transp ... 71.article

From November:

Airbus has a healthy backlog of the A320. A 220-500 would compete with the 320. It’s been suggested to LNA that Airbus will launch the -500 when orders for the A320 largely dry up and the backlog is reduced. Scherer didn’t directly address these speculative points. But he did say the 220 program needs to achieve profitability first.

“When we see the program profitability performing as we anticipate it will, and we’re on trajectory to do that, then when we can no longer hold off market pressure because we are experiencing market pressure for the stretch of the 220, clearly,” he said.

Airbus doesn’t reveal profit or loss by program, but one London-based aerospace analyst estimates the 220 program currently loses about $400m per year on a production rate of 5/mo. Airbus wants to increase the rate to 14/mo by 2025, which, with cost-cutting, will further trim costs.

Ref: https://leehamnews.com/2021/11/16/air-l ... -by-others

From February:

Asam says the company has seen a “shift away” from twin-aisles which had “good production margins” and a move towards the A220 which is still loss-making.

“There a lower contribution margin from widebodies and none from the A220,” he states.

Airbus last year pushed back its estimated break-even point for the programme to the mid-2020s, as it acquired a larger share of Airbus Canada Limited Partnership, the A220’s manufacturer.

Asam had said, at the time, that break-even required a “decent fill-rate” from both the Montreal Mirabel and the Mobile assembly lines.

Monthly production of the A220 will rise to five aircraft at the end of the first quarter of this year. The backlog for the type, at the end of January, stood at 484.

Asam says there is a “drive to cut costs” and that the break-even point is about 150 aircraft – although he says the company believes it can bring this “down a bit” by the mid-decade.

Ref: https://www.worldglobal.co.uk/2021/02/1 ... win-aisles

We read in this thread and others that -500 is immanent, yet the COO says is is not, and profitability must come first. The article linked in the thread starter gives break even at 2026 which seems to be a new definition of mid-decade, one moving in the wrong direction.

MIflyer12 wrote:

TObound wrote:

Lastly, I get the sense that many Americans and Europeans just don't understand how much of a huge aerospace sector is located in Montreal. It's not exactly some backwater town with Airbus assembling 220s in a shed. There's a lot more there than Mobile will have for a long time to come.

It may be a relatively (for Canada/Quebec) large sector, but it isn't a particularly productive or profitable sector. After selling rail, BRP, and the C Series, BBD is now a pure business jet play. It will take a decade to see if they're making the needed investments to yield competitive and profitable product lines, but I wouldn't give them my investment: BBD has messed up everything they have touched for the last two decades. The have the reverse Midas touch, continually enabled by Quebecois politicians.

Thanks for proving my point.

Aerospace in Montreal is a lot more than just Bombardier (Airbus now).

In Mirabel, the pre-FAL was inaugurated earlier this month. There should have been a public event, but the semi-lockdown currently enforced in Québec prevented this from happening and it will take place later.

The A220 design office is in Mirabel and will not move to Mobile, which is a strict production facility. There is no chance to hire the required design office competences in Alabama, which is only able to provide cheap, local production labour. The place will never be able to attract skilled and educated design office staff.

Aerospace in Montreal is Airbus (A220), Bombardier (1000th Global Express delivered at the end of last year, no small achievement), Bell Helicopters (most of the civil range), Mitsubishi (CRJ), Pratt & Whitney Canada, CAE, and all the suppliers gravitating around this eco-system. Add Air Canada, and ICAO HQ, together with the international organizations it comes with, including the IATA HQ etc.

Revelation wrote:

FLALEFTY wrote:

When push comes to shove the Quebec government will reluctantly invest the extra $200M (Canadian, or US?) to keep Airbus happy and the Mirabel A220 FAL operating for years to come. There will be the usual media rant about the A220 program's ups & downs for Quebec, but cooler heads will prevail because high tech/high salary jobs of this magnitude are hard to come by:

https://montrealgazette.com/business/lo ... put-climbs

I think it's relatively easy for governments to get taxpayer support for such projects (witness Airbus being over 25% government owned, Boeing getting tax breaks, and both benefiting from COVID relief programs) but IMO there is a risk of going back to the well too many times and losing public support. BBD wore out its welcome doing this, hopefully Airbus doesn't end up in a similar situation, yet the article indicates the mooted A220 stretch would require "significant investment" with presumably 25% coming from the taxpayers.

Overall, it suggests that there is still a problem with A220 hitting financial goals, and this could limit the program's future growth.

The 25% of government money in Airbus themselves, makes those governments money. Those governments could easily sell those stakes on the market.

It is also often forgotten that the often criticized launch aid is not free money, but risk sharing. The A320 family and A330/340 programs still pay royalties to the involved governments long after the initial loans were paid off.
It was not the launch aids that were declared irregular by the WTO, but below market interest rates.

armagnac2010 wrote:

In Mirabel, the pre-FAL was inaugurated earlier this month. There should have been a public event, but the semi-lockdown currently enforced in Québec prevented this from happening and it will take place later.

The A220 design office is in Mirabel and will not move to Mobile, which is a strict production facility. There is no chance to hire the required design office competences in Alabama, which is only able to provide cheap, local production labour. The place will never be able to attract skilled and educated design office staff.

Aerospace in Montreal is Airbus (A220), Bombardier (1000th Global Express delivered at the end of last year, no small achievement), Bell Helicopters (most of the civil range), Mitsubishi (CRJ), Pratt & Whitney Canada, CAE, and all the suppliers gravitating around this eco-system. Add Air Canada, and ICAO HQ, together with the international organizations it comes with, including the IATA HQ etc.

That's quite a condescending statement: there are skilled engineers in Alabama, the greater Southeast US and the US in general. The Mobile area is much cheaper to live in than a lot of other places, so, many people would be willing to relocate for a good job.

Revelation wrote:

9252fly wrote:

You seem quite pessimistic on the A220. None of us are party to the financials of the program and the true objectives, all we can do is allow for it to unfold. I on the other hand am quite optimistic about the program and it's future potential. It would be interesting if we could be a fly on the wall in the Airbus boardroom to know what the $800M will to allocated to besides the obvious guesses such as cost reduction, production ramp up, A225,etc,.

I don't think I'm pessimistic, I think I'm realistic. I get the feeling some people have the same "drug like rush" that Richard Aboulafia famously ascribed to people's treatment of the 787. I think it will be a success, just like 787 became, but just not on the same time line other people are projecting.

As for some objectives, we can go on what has been recently said regarding the A220 in general and the A220-500 in particular.

From Jan 10th:

With the “very aggressive” ramp-up of A220-300 and -100 production among Airbus’s priorities, Scherer says the question of stretching the aircraft is “really not an imminent decision upon us”.

He reiterates that the A220 is on a “great trajectory of success” and a stretch is a “natural evolution”, adding that the need to consider it “will come”.

“There is no precise timeline,” he says. “It will come over time, but it’s not an agenda item for near-term decisions.”

Ref: https://www.flightglobal.com/air-transp ... 71.article

From November:

Airbus has a healthy backlog of the A320. A 220-500 would compete with the 320. It’s been suggested to LNA that Airbus will launch the -500 when orders for the A320 largely dry up and the backlog is reduced. Scherer didn’t directly address these speculative points. But he did say the 220 program needs to achieve profitability first.

“When we see the program profitability performing as we anticipate it will, and we’re on trajectory to do that, then when we can no longer hold off market pressure because we are experiencing market pressure for the stretch of the 220, clearly,” he said.

Airbus doesn’t reveal profit or loss by program, but one London-based aerospace analyst estimates the 220 program currently loses about $400m per year on a production rate of 5/mo. Airbus wants to increase the rate to 14/mo by 2025, which, with cost-cutting, will further trim costs.

Ref: https://leehamnews.com/2021/11/16/air-l ... -by-others

From February:

Asam says the company has seen a “shift away” from twin-aisles which had “good production margins” and a move towards the A220 which is still loss-making.

“There a lower contribution margin from widebodies and none from the A220,” he states.

Airbus last year pushed back its estimated break-even point for the programme to the mid-2020s, as it acquired a larger share of Airbus Canada Limited Partnership, the A220’s manufacturer.

Asam had said, at the time, that break-even required a “decent fill-rate” from both the Montreal Mirabel and the Mobile assembly lines.

Monthly production of the A220 will rise to five aircraft at the end of the first quarter of this year. The backlog for the type, at the end of January, stood at 484.

Asam says there is a “drive to cut costs” and that the break-even point is about 150 aircraft – although he says the company believes it can bring this “down a bit” by the mid-decade.

Ref: https://www.worldglobal.co.uk/2021/02/1 ... win-aisles

We read in this thread and others that -500 is immanent, yet the COO says is is not, and profitability must come first. The article linked in the thread starter gives break even at 2026 which seems to be a new definition of mid-decade, one moving in the wrong direction.

Is he saying the break even point is 150 Aircraft per year? At that rate they barely have a three year backlog. To get to that they will probably need a lot more than $800 million and it will most likely be well past 2026 when they can get to breakeven.

$800 million just covers losses for probably this year and next on production, then there is capital needed to improve the lines, then there will be 2024/2025 losses and then -500 design costs, then buying out Quebec - then another factory in Europe if this replaces A320.

By the end of the day they may not be that far off the cost of a clean sheet. How much have they already "invested" in the program?

At least with a clean sheet they would have had a common cockpit and they could have optimized production by only producing it in one location.

Building in potentially three locations is not a way to "optimize" production.

WayexTDI wrote:

armagnac2010 wrote:

In Mirabel, the pre-FAL was inaugurated earlier this month. There should have been a public event, but the semi-lockdown currently enforced in Québec prevented this from happening and it will take place later.

The A220 design office is in Mirabel and will not move to Mobile, which is a strict production facility. There is no chance to hire the required design office competences in Alabama, which is only able to provide cheap, local production labour. The place will never be able to attract skilled and educated design office staff.

Aerospace in Montreal is Airbus (A220), Bombardier (1000th Global Express delivered at the end of last year, no small achievement), Bell Helicopters (most of the civil range), Mitsubishi (CRJ), Pratt & Whitney Canada, CAE, and all the suppliers gravitating around this eco-system. Add Air Canada, and ICAO HQ, together with the international organizations it comes with, including the IATA HQ etc.

That's quite a condescending statement: there are skilled engineers in Alabama, the greater Southeast US and the US in general. The Mobile area is much cheaper to live in than a lot of other places, so, many people would be willing to relocate for a good job.

Not to mention Airbus already has a design office in Mobile...

morrisond wrote:

At least with a clean sheet they would have had a common cockpit and they could have optimized production by only producing it in one location.

Building in potentially three locations is not a way to "optimize" production.

It’s not Airbus’s MO to produce narrow body jets in only one location. The A320 family is produced in at least four locations. Even Boeing had gotten on the bandwagon and produced 787s out of two factories for a while.

ikramerica wrote:

Here’s an idea. Sell products for a profit, not a loss.

are you saying that Boeing should have cancelled the 787 program? It took them forever to turn a profit on it after all.... or Airbus the A350, i am sure there where frames they had to sell at a loss in the beginning.

Of course, so much government interference with tax breaks and government investment/ownership in manufacturing and airline operations distorts the market and if you try to sell planes at the real fair price, you can’t “compete” and “win orders.”

There is no government interference here, the program needs investments and all shareholders have to toss in some coin. One of those shareholders happens to be a government, the alternative is simply reducing its share of the company.

best regards
Thomas

tommy1808 wrote:

ikramerica wrote:

]Of course, so much government interference with tax breaks and government investment/ownership in manufacturing and airline operations distorts the market and if you try to sell planes at the real fair price, you can’t “compete” and “win orders.”

There is no government interference here, the program needs investments and all shareholders have to toss in some coin. One of those shareholders happens to be a government, the alternative is simply reducing its share of the company.

Yet we see the opposite, a government finance minister actively seeking to steer taxpayer funds to the partnership to maintain the government share in the program. Since taxation is involuntary, this is a distortion of the market exactly as ikramerica suggests.

To suggest that government investment comes with no influence if not interference is IMO naive at best, but it also comes with a degree of protection too. We already know of at least one string attached to the money, that ACLP keep a certain number of jobs in QC for a certain amount of time. Yet we know Airbus wants the government to have skin in the game since IQ was bumped up to 25% ownership for free in BBD buyout ( "Airbus now holds 75 percent of Airbus Canada with the Government of Québec increasing its holding to 25 percent for no cash consideration", ref: https://www.airbus.com/en/newsroom/pres ... f-the-a220 ). Airbus seems to be happy for the government to have "skin in the game", and I don't blame them for this at all.

I don't have a problem with any of this, other than us pretending it isn't what it clearly is, a distortion of the market.

We can talk about free markets when there is one. Till then, Quebec is playing the game as it is set up.

Revelation wrote:

tommy1808 wrote:

ikramerica wrote:

]Of course, so much government interference with tax breaks and government investment/ownership in manufacturing and airline operations distorts the market and if you try to sell planes at the real fair price, you can’t “compete” and “win orders.”

There is no government interference here, the program needs investments and all shareholders have to toss in some coin. One of those shareholders happens to be a government, the alternative is simply reducing its share of the company.

Yet we see the opposite, a government finance minister actively seeking to steer taxpayer funds to the partnership to maintain the government share in the program. Since taxation is involuntary, this is a distortion of the market exactly as ikramerica suggests.

To suggest that government investment comes with no influence if not interference is IMO naive at best, but it also comes with a degree of protection too. We already know of at least one string attached to the money, that ACLP keep a certain number of jobs in QC for a certain amount of time. Yet we know Airbus wants the government to have skin in the game since IQ was bumped up to 25% ownership for free in BBD buyout ( "Airbus now holds 75 percent of Airbus Canada with the Government of Québec increasing its holding to 25 percent for no cash consideration", ref: https://www.airbus.com/en/newsroom/pres ... f-the-a220 ). Airbus seems to be happy for the government to have "skin in the game", and I don't blame them for this at all.

I don't have a problem with any of this, other than us pretending it isn't what it clearly is, a distortion of the market.

Exactly. Providing incentives, breaks, or "ownership" in Manufacturing OR operations means that the true price of the aircraft is never known. One issue with government loans or ownership stakes is that they don't operate under the same risk/reward rules as outside lending. And they tend to prop up the entity while it is failing.

This also applies to EXIM bank financing, government ownership of airlines, etc.

We will NEVER know what the cost of an airplane actually is. Ever. We only know sort of know what an airline claims to pay (and often without details of interest, maintenance, etc.) for an aircraft that has already been subsidized on the manufacturing side.

I used to be of the mind that this or that isn't "fair" but it's become very obvious that there is and never was any such concept of fairness in the aircraft market. There are too many national interests involved and always have been.

Revelation wrote:

BBD wore out its welcome doing this, hopefully Airbus doesn't end up in a similar situation, yet the article indicates the mooted A220 stretch would require "significant investment" with presumably 25% coming from the taxpayers.

The MRJ is a case study for what happens when the backing government decides to let a free market reign. After an initial $500 million investment, everything else was funded by MITAC, who eventually pulled the plug when they realized that between certification issues, delays and mounting costs there was no way for the program to break even.

I would even go so far that all commercial OEMs are taxpayer-supported one way or another. It's just to varying degrees and through different avenues. After all, aviation is of strategic value so states are more than willing to gain indepence from imports and foreign governments.

ikramerica wrote:

Revelation wrote:

tommy1808 wrote:

There is no government interference here, the program needs investments and all shareholders have to toss in some coin. One of those shareholders happens to be a government, the alternative is simply reducing its share of the company.

Yet we see the opposite, a government finance minister actively seeking to steer taxpayer funds to the partnership to maintain the government share in the program. Since taxation is involuntary, this is a distortion of the market exactly as ikramerica suggests.

To suggest that government investment comes with no influence if not interference is IMO naive at best, but it also comes with a degree of protection too. We already know of at least one string attached to the money, that ACLP keep a certain number of jobs in QC for a certain amount of time. Yet we know Airbus wants the government to have skin in the game since IQ was bumped up to 25% ownership for free in BBD buyout ( "Airbus now holds 75 percent of Airbus Canada with the Government of Québec increasing its holding to 25 percent for no cash consideration", ref: https://www.airbus.com/en/newsroom/pres ... f-the-a220 ). Airbus seems to be happy for the government to have "skin in the game", and I don't blame them for this at all.

I don't have a problem with any of this, other than us pretending it isn't what it clearly is, a distortion of the market.

Exactly. Providing incentives, breaks, or "ownership" in Manufacturing OR operations means that the true price of the aircraft is never known. One issue with government loans or ownership stakes is that they don't operate under the same risk/reward rules as outside lending. And they tend to prop up the entity while it is failing.

This also applies to EXIM bank financing, government ownership of airlines, etc.

We will NEVER know what the cost of an airplane actually is. Ever. We only know sort of know what an airline claims to pay (and often without details of interest, maintenance, etc.) for an aircraft that has already been subsidized on the manufacturing side.

I used to be of the mind that this or that isn't "fair" but it's become very obvious that there is and never was any such concept of fairness in the aircraft market. There are too many national interests involved and always have been.

It is particularly annoying for those of us in smaller economies like Canada, when the larger players use appeals about free markets when it suits them and resort to blatant protectionism when it doesn't.

When Trump was in office, Canadian steel was barred on national security grounds to protect American steelmakers. But, that won't stop Americans from preaching all about the free market... I won't even get into the defence industrial complex of the US and mandated policies that ensure a strong industrial base for national security reasons, with everything from protectionism to large preferential contracts.

Canada is the 5th largest aerospace exporter in the world. And a lot of that is concentrated in Quebec. Their government has very good reason to defend and promote the sector. Just as any other government, anywhere else would in this situation.

TObound wrote:

ikramerica wrote:

Revelation wrote:

Yet we see the opposite, a government finance minister actively seeking to steer taxpayer funds to the partnership to maintain the government share in the program. Since taxation is involuntary, this is a distortion of the market exactly as ikramerica suggests.

To suggest that government investment comes with no influence if not interference is IMO naive at best, but it also comes with a degree of protection too. We already know of at least one string attached to the money, that ACLP keep a certain number of jobs in QC for a certain amount of time. Yet we know Airbus wants the government to have skin in the game since IQ was bumped up to 25% ownership for free in BBD buyout ( "Airbus now holds 75 percent of Airbus Canada with the Government of Québec increasing its holding to 25 percent for no cash consideration", ref: https://www.airbus.com/en/newsroom/pres ... f-the-a220 ). Airbus seems to be happy for the government to have "skin in the game", and I don't blame them for this at all.

I don't have a problem with any of this, other than us pretending it isn't what it clearly is, a distortion of the market.

Exactly. Providing incentives, breaks, or "ownership" in Manufacturing OR operations means that the true price of the aircraft is never known. One issue with government loans or ownership stakes is that they don't operate under the same risk/reward rules as outside lending. And they tend to prop up the entity while it is failing.

This also applies to EXIM bank financing, government ownership of airlines, etc.

We will NEVER know what the cost of an airplane actually is. Ever. We only know sort of know what an airline claims to pay (and often without details of interest, maintenance, etc.) for an aircraft that has already been subsidized on the manufacturing side.

I used to be of the mind that this or that isn't "fair" but it's become very obvious that there is and never was any such concept of fairness in the aircraft market. There are too many national interests involved and always have been.

It is particularly annoying for those of us in smaller economies like Canada, when the larger players use appeals about free markets when it suits them and resort to blatant protectionism when it doesn't.

When Trump was in office, Canadian steel was barred on national security grounds to protect American steelmakers. But, that won't stop Americans from preaching all about the free market... I won't even get into the defence industrial complex of the US and mandated policies that ensure a strong industrial base for national security reasons, with everything from protectionism to large preferential contracts.

Canada is the 5th largest aerospace exporter in the world. And a lot of that is concentrated in Quebec. Their government has very good reason to defend and promote the sector. Just as any other government, anywhere else would in this situation.

All well and good, but artificially propping up the A series to undercut competition rather than sell at a fair prixe is good for quebec, but it harms Brazil and Japan, who then must prop up their players lest they fail because they have to compete with below market prices.

It all comes down to this: too little is charged to carry a customer from A to B, and the rest trickles down to the cost of planes.

ikramerica wrote:

Revelation wrote:

tommy1808 wrote:

There is no government interference here, the program needs investments and all shareholders have to toss in some coin. One of those shareholders happens to be a government, the alternative is simply reducing its share of the company.

Yet we see the opposite, a government finance minister actively seeking to steer taxpayer funds to the partnership to maintain the government share in the program. Since taxation is involuntary, this is a distortion of the market exactly as ikramerica suggests.

To suggest that government investment comes with no influence if not interference is IMO naive at best, but it also comes with a degree of protection too. We already know of at least one string attached to the money, that ACLP keep a certain number of jobs in QC for a certain amount of time. Yet we know Airbus wants the government to have skin in the game since IQ was bumped up to 25% ownership for free in BBD buyout ( "Airbus now holds 75 percent of Airbus Canada with the Government of Québec increasing its holding to 25 percent for no cash consideration", ref: https://www.airbus.com/en/newsroom/pres ... f-the-a220 ). Airbus seems to be happy for the government to have "skin in the game", and I don't blame them for this at all.

I don't have a problem with any of this, other than us pretending it isn't what it clearly is, a distortion of the market.

Exactly. Providing incentives, breaks, or "ownership" in Manufacturing OR operations means that the true price of the aircraft is never known. One issue with government loans or ownership stakes is that they don't operate under the same risk/reward rules as outside lending. And they tend to prop up the entity while it is failing.

This also applies to EXIM bank financing, government ownership of airlines, etc.

We will NEVER know what the cost of an airplane actually is. Ever. We only know sort of know what an airline claims to pay (and often without details of interest, maintenance, etc.) for an aircraft that has already been subsidized on the manufacturing side.

I used to be of the mind that this or that isn't "fair" but it's become very obvious that there is and never was any such concept of fairness in the aircraft market. There are too many national interests involved and always have been.

You also have to consider taxation. Quebec sales tax is just under 10%. Income tax is on a sliding scale but well above that. End result is if Quebec requires all the investment in the program to be made in Quebec it is going to get 10-15% back just in taxes on equipment, supplies and services purchased by Airbus and labour spent on the program. With the fact a good percentage of that labour is going to be spent in Quebec, this is likely a zero cost investment for the province.

Yes, we will never know the true cost, but that is ok.

casperCA wrote:

ikramerica wrote:

Revelation wrote:

Yet we see the opposite, a government finance minister actively seeking to steer taxpayer funds to the partnership to maintain the government share in the program. Since taxation is involuntary, this is a distortion of the market exactly as ikramerica suggests.

To suggest that government investment comes with no influence if not interference is IMO naive at best, but it also comes with a degree of protection too. We already know of at least one string attached to the money, that ACLP keep a certain number of jobs in QC for a certain amount of time. Yet we know Airbus wants the government to have skin in the game since IQ was bumped up to 25% ownership for free in BBD buyout ( "Airbus now holds 75 percent of Airbus Canada with the Government of Québec increasing its holding to 25 percent for no cash consideration", ref: https://www.airbus.com/en/newsroom/pres ... f-the-a220 ). Airbus seems to be happy for the government to have "skin in the game", and I don't blame them for this at all.

I don't have a problem with any of this, other than us pretending it isn't what it clearly is, a distortion of the market.

Exactly. Providing incentives, breaks, or "ownership" in Manufacturing OR operations means that the true price of the aircraft is never known. One issue with government loans or ownership stakes is that they don't operate under the same risk/reward rules as outside lending. And they tend to prop up the entity while it is failing.

This also applies to EXIM bank financing, government ownership of airlines, etc.

We will NEVER know what the cost of an airplane actually is. Ever. We only know sort of know what an airline claims to pay (and often without details of interest, maintenance, etc.) for an aircraft that has already been subsidized on the manufacturing side.

I used to be of the mind that this or that isn't "fair" but it's become very obvious that there is and never was any such concept of fairness in the aircraft market. There are too many national interests involved and always have been.

You also have to consider taxation. Quebec sales tax is just under 10%. Income tax is on a sliding scale but well above that. End result is if Quebec requires all the investment in the program to be made in Quebec it is going to get 10-15% back just in taxes on equipment, supplies and services purchased by Airbus and labour spent on the program. With the fact a good percentage of that labour is going to be spent in Quebec, this is likely a zero cost investment for the province.

Yes, we will never know the true cost, but that is ok.

More. A lot more. Keep in mind that taxes are collected at every level of activity. It's not just the taxes on equipment and salaries at Airbus Mirabel. It's the taxes collected when those employees go spend at the grocery store or from the salaries of suppliers to Airbus. The economic multiplier is high in manufacturing. And that is exactly why governments go out of their way to defend these sectors and the jobs they come with.

ikramerica wrote:

TObound wrote:

ikramerica wrote:

Exactly. Providing incentives, breaks, or "ownership" in Manufacturing OR operations means that the true price of the aircraft is never known. One issue with government loans or ownership stakes is that they don't operate under the same risk/reward rules as outside lending. And they tend to prop up the entity while it is failing.

This also applies to EXIM bank financing, government ownership of airlines, etc.

We will NEVER know what the cost of an airplane actually is. Ever. We only know sort of know what an airline claims to pay (and often without details of interest, maintenance, etc.) for an aircraft that has already been subsidized on the manufacturing side.

I used to be of the mind that this or that isn't "fair" but it's become very obvious that there is and never was any such concept of fairness in the aircraft market. There are too many national interests involved and always have been.

It is particularly annoying for those of us in smaller economies like Canada, when the larger players use appeals about free markets when it suits them and resort to blatant protectionism when it doesn't.

When Trump was in office, Canadian steel was barred on national security grounds to protect American steelmakers. But, that won't stop Americans from preaching all about the free market... I won't even get into the defence industrial complex of the US and mandated policies that ensure a strong industrial base for national security reasons, with everything from protectionism to large preferential contracts.

Canada is the 5th largest aerospace exporter in the world. And a lot of that is concentrated in Quebec. Their government has very good reason to defend and promote the sector. Just as any other government, anywhere else would in this situation.

All well and good, but artificially propping up the A series to undercut competition rather than sell at a fair prixe is good for quebec, but it harms Brazil and Japan, who then must prop up their players lest they fail because they have to compete with below market prices.

It all comes down to this: too little is charged to carry a customer from A to B, and the rest trickles down to the cost of planes.

No complaints about when Boeing and Airbus sell below cost in their home markets to lock out the competition? Or when that doesn't work ask the government to impose a 300% tariff?

Like I said earlier, we can talk about free markets when they actually exist. But till then, it's BS to expect Quebec to rollover just because they are smaller.

Also, it has long been (wrongly) perceived that this was all about protecting Bombardier. Now that it's Airbus, hopefully people understand that the Government of Quebec doesn't really care whose name is on the side of the building. They just want to protect the sector and the jobs it provides. Having a large OEM in Mirabel anchors a whole lot of suppliers in Montreal.

Viewed in the above context, putting in another $200M really isn't hard to swallow for them. Nor would giving up the shares to Airbus for firmer guarantees of employment.

ikramerica wrote:

TObound wrote:

ikramerica wrote:

Exactly. Providing incentives, breaks, or "ownership" in Manufacturing OR operations means that the true price of the aircraft is never known. One issue with government loans or ownership stakes is that they don't operate under the same risk/reward rules as outside lending. And they tend to prop up the entity while it is failing.

This also applies to EXIM bank financing, government ownership of airlines, etc.

We will NEVER know what the cost of an airplane actually is. Ever. We only know sort of know what an airline claims to pay (and often without details of interest, maintenance, etc.) for an aircraft that has already been subsidized on the manufacturing side.

I used to be of the mind that this or that isn't "fair" but it's become very obvious that there is and never was any such concept of fairness in the aircraft market. There are too many national interests involved and always have been.

It is particularly annoying for those of us in smaller economies like Canada, when the larger players use appeals about free markets when it suits them and resort to blatant protectionism when it doesn't.

When Trump was in office, Canadian steel was barred on national security grounds to protect American steelmakers. But, that won't stop Americans from preaching all about the free market... I won't even get into the defence industrial complex of the US and mandated policies that ensure a strong industrial base for national security reasons, with everything from protectionism to large preferential contracts.

Canada is the 5th largest aerospace exporter in the world. And a lot of that is concentrated in Quebec. Their government has very good reason to defend and promote the sector. Just as any other government, anywhere else would in this situation.

All well and good, but artificially propping up the A series to undercut competition rather than sell at a fair prixe is good for quebec, but it harms Brazil and Japan, who then must prop up their players lest they fail because they have to compete with below market prices.

It all comes down to this: too little is charged to carry a customer from A to B, and the rest trickles down to the cost of planes.

Everybody gets subsidies in way one or another. B got massive taxbreaks in Chicago and Charleston, A is a subsidy project from its genesis and Embrear gets its fair share of help from the Brazilian government. The help that the A220 is getting just how the industry has been working since its inception, getting government breaks and grants whereever and whenever they can...

TObound wrote:

casperCA wrote:

You also have to consider taxation. Quebec sales tax is just under 10%. Income tax is on a sliding scale but well above that. End result is if Quebec requires all the investment in the program to be made in Quebec it is going to get 10-15% back just in taxes on equipment, supplies and services purchased by Airbus and labour spent on the program. With the fact a good percentage of that labour is going to be spent in Quebec, this is likely a zero cost investment for the province.

Yes, we will never know the true cost, but that is ok.

More. A lot more. Keep in mind that taxes are collected at every level of activity. It's not just the taxes on equipment and salaries at Airbus Mirabel. It's the taxes collected when those employees go spend at the grocery store or from the salaries of suppliers to Airbus. The economic multiplier is high in manufacturing. And that is exactly why governments go out of their way to defend these sectors and the jobs they come with.

IMO those benefits would be the same if Airbus truly felt QC was the right place to build the plane and just got money from a commercial source. IMO, even better, the taxpayers who don't want to be in the airplane business would not be in the airplane business, and the bankers who do want to be in the airplane business would be.

JonesNL wrote:

The help that the A220 is getting just how the industry has been working since its inception, getting government breaks and grants whereever and whenever they can...

IMO we see this program needs more money than anticipated and is taking longer to break even than anticipated which makes it just like other programs too. IMO this is the point of the thread, the program is missing targets and is seeking additional taxpayer funding.