An employee works on a part for a Phenom 300 jet on the assembly line at the Embraer SA manufacturing plant in Sao Jose dos Campos, Brazil, on Wednesday, Oct. 7, 2015.Paulo Fridman/Bloomberg
Spurned by Airbus Group SE, Bombardier Inc. intends to approach Brazilian aerospace competitor Embraer SA to discuss forming a partnership to prop up the Canadian company's C Series passenger jet.
A senior aviation executive close to Bombardier said Tuesday that the company had not approached Embraer yet, "but I know they intend to."
He said Bombardier may also approach Boeing, Airbus's American rival. "Bombardier will not leave any stone unturned," he said.
Bombardier would neither confirm nor deny that Embraer was on its contact list but has made it clear that it is looking for deals that could bolster both the C Series and the company's finances. "As we mentioned earlier this year, we are exploring initiatives such as potential participation in industry consolidation, but we will not discuss our activities in this regard," said communications director Isabelle Rondeau.
Embraer has been Bombardier's arch-rival in the regional jet market and its aircraft have become ubiquitous; Air Canada is among is customers. Its E jets – the 170, 175, 190 and 195 – seat from 70 passengers in their smallest configuration to 108-124 passengers in their largest.
Embraer has no plane that would compete directly with the C Series, which is larger than a regional jet and has transcontinental, even transatlantic, capabilities. The Canadian plane, which is expected to enter commercial service next year, will come in two versions, seating from 120 to 140 passengers in single-class configuration, although jamming in as many as 160 seats in the bigger model is possible.
The executive said Embraer might find the C Series attractive because it currently lacks an aircraft of the C Series' size, allowing it to enter a new market (it plans to launch new versions of the E aircraft, one of which would carry 132 passengers, by the end of the decade). But equally, he said, Embraer might be wary of taking on a plane that would compete directly with the smaller planes in the Airbus and Boeing portfolios.
Embraer on Tuesday did not respond to a request for comment.
In response to the threat posed by the C Series, Boeing and Airbus have been overhauling their workhorse single-aisle jets, the Boeing 737 and the Airbus A320, to make them more fuel efficient and quieter. As a result, the C Series has been a sales disappointment, with only 243 firm orders booked so far, and no new order for more than a year. The sales drought has raised fears among prospective buyers that the C Series could become an orphan aircraft.
The C Series is two years late and $2-billion (U.S.) over budget. The delays and hefty development costs are draining Bombardier's liquidity, which stood at $3.1-billion at the end of June.
To strengthen the company's balance sheet, Bombardier is planning to sell a minority stake in its train division, Bombardier Transportation, through an initial public offering on the German market by the end of the year. Details of the IPO are expected when Bombardier unveils its third-quarter results on Oct. 29.
Bombardier is insisting it has no interest in selling all of Bombardier Transportation even though the Chinese rail companies have made it known they would be willing to buy the whole company to gain an instant manufacturing and marketing presence in Europe, which is still the world's largest train market.
Bombardier had held talks with Airbus about forming a joint venture to market the C Series and finish the final stages of its development. The deal reportedly would have given Bombardier access to Airbus's global servicing network and supply chain, allowing the C Series to reduce its maintenance and manufacturing costs.
Early last week, Airbus announced that the talks were "no longer being pursued," after which Bombardier reiterated its plan to keep exploring consolidation scenarios. The executive who is close to Bombardier said talks with Airbus could resume because some of the senior Airbus executives, if not Airbus Group chief executive officer Thomas Enders himself, were in favour of a C Series joint venture.
What is not known in any potential talks with Embraer, Airbus, Boeing or other aerospace companies is how much C Series control Bombardier would be willing to forgo to recruit a partner. The executive said Bombardier "has no intention of giving up the aircraft" – implying its outright sale to a competitor is unlikely – nor allowing its Montreal-area assembly operations to be shifted to another country. Any such restrictions might make a partnership difficult to achieve.
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What to know about Embraer SA
Embraer SA, once a small but scrappy state-owned aircraft manufacturer with everything to prove, has transformed itself over the past 15 years into a formidable rival to Bombardier Inc. in the regional and business jet markets.
The Brazilian company has overtaken Bombardier as the world's biggest maker of regional jets and is aggressively pushing further into the global business jet sector, currently dominated by its Canadian rival.
In stark contrast to Bombardier, which decided to bet massively on an all new bigger aircraft – the C Series – that bumps it up against giants Boeing Co. and Airbus Group SE, Embraer decided to go the lower-cost, lower-risk route of re-engineering its existing E Jet platform of regional jets, which include the popular E175, E190 and E195.
Delivery of the first new E2 model – in the 70-to-130-seat category – is scheduled for 2018, two years after Bombardier's planned entry into service for its C Series.
On the business jet side, Embraer entered the market only 15 years ago with the Legacy 600, based on its ERJ 135 regional jet platform. It later expanded its offerings with the Phenom light aircraft and the ultralarge, longer-range Lineage models.
Embraer has sold more than 5,000 aircraft worldwide, both commercial and business, it says.
At the end of the second quarter of 2015, the latest for which figures are available, Embraer had $22.9-billion (U.S.) in its aerospace backlog, compared with $34.3-billion at Bombardier.
Embraer said it delivered 27 commercial and 33 business jets for a total of 60 aircraft in the quarter, compared with 19 commercial and 47 business – or 66 total – for Bombardier.
Both Bombardier and Embraer face growing competition from new entrants in the regional jet market, including Russia's Sukhoi Superjet, China's Comac and Japan's Mitsubishi.
- Bertrand Marotte