It is time to update our readers on Bombardier and its C-Series aircraft program.
Our last Supply Chain Matters and Supply Chain Expert Community update was in October 2010. We noted that Bombardier was taking a huge strategic gamble on the supply chain deployment and market launch of the new C-Series aircraft scheduled for 2013. The C-Series is a 100-150 single-aisle passenger aircraft that is the cornerstone of the company’s plan to compete head-on with the likes of Boeing’s 737 and the Airbus A380 for advanced, lightweight commercial aircraft that can deliver compelling fuel efficiencies for airlines. This market segment has dominated aerospace headlines throughout the year.
In 2011, airlines were compelled to begin to open their wallets and place large amounts of replacement orders for more fuel efficient, narrow aisle aircraft, and the Airbus Experiences a Spectacular Week of Landing Customer Orders- Lessons of Timing the Market and Value-Chain Collaboration, followed by the 737. At the recent Paris Air Show, Airbus garnered one of the highest order volume rates in its history through customer orders of the planned A380 Neo. Thus far, Bombardier, and its China based rival COMAC, continue to compete for remaining customer orders.
In an interview published in the Wall Street Journal on November 21 (paid subscription or free metered view), Bombardier CEO Pierre Beaudoin remained upbeat, indicating that he was not too worried about uptake in new orders for the C-Series. Thus far, Bombardier has 133 firm orders, which is supposed to place the manufacturer on-track to its target to have 200 to 300 orders between first maiden flight and first delivery in 2013. Mr. Beaudoin’s statement in the interview indicates that he would rather have his company concentrate on delivering the plane on time while maintaining its stated profitability goals than moving to discounting list price at this point. Further he states that the aircraft manufacturer has turned down prices that it did not like, and that its main market is China where anywhere between 20 to 30 percent of the global fleet could eventually be located.
Our reaction to the interview was of course, slanted toward a supply chain lens. As more and more airlines weigh in with the current high rate of firm orders, the aerospace supply chain as a whole becomes committed to long-term capacity, and especially to the two current key players, Airbus and Boeing. Some of Bombardier’s C Series suppliers also cater to these current dominants.
Recall that the C series also features an outsourced global supply chain for many of its major components, allowing Bombardier to concentrate solely on innovation, design and final assembly needs. Major components such as fuselage wings and tail are sourced in China, Ireland, Italy, and other countries. All of the major components are to be shipped to Bombardier’s final assembly facility outside Montreal’s Mirabel airport for final integration. While profitability is certainly a very important goal, some aspect of volume scale is required to justify overcoming fixed supply chain material and transportation costs. There has always been a debate as to where the break-even point resides with this new outsourced major component and final assembly integration model. A review of Boeing’s 787 Dreamliner’s primarily outsourced supply chain provides ample evidence to this debate.
The second aspect for consideration is the stated goal competing for China’s aircraft business. Aerospace is one of the key strategic growth industries identified by China’s political leaders in the current five year economic plan. In our November Supply Chain Matters commentary, China Takes Aim at Aerospace, we observed that China based, state-owned aerospace manufacturer COMAC has embarked on its own program of innovation and cost competitiveness for narrow aisle aircraft, and also features a C Series program. (Coincidental, of-course) In order to insure strategic options are covered, major component aerospace suppliers such as General Electric and United Technologies have jumped-in with strategic development and relationship programs with COMAC and its other China based supplier partners. COMAC has already garnered orders from several of China’s state-owned airlines because of its unique role for contributing to China’s strategic plan for competiveness in aerospace, and continues its declaration that it will provide a compelling alternative offering for the global market.
Bombardier currently faces difficult headwinds with its C Series program, not all of which from its doing. Aerospace industry events have been dramatic and far-reaching in 2011, and the industry is in both an enviable, and yet challenging situation. Order volumes have been robust, but supply chains remain even more stressed to deliver capability and commitments for the next 5-10 years. The Bombardier C Series aircraft needs to find its place in this challenging environment, especially while customer buying motivations currently remain biased toward staying competitive in future aircraft operating efficiencies.
A highly uncertain global financial climate and industry that has supplier capacity increasingly being committed and internal dynamics within China’s airline operators may alter the widow of opportunity for Bombardier.
We wish Bombardier well and trust we can look forward to the inaugural flight of the C-Series.