- In 2016, Delta Air Lines ordered 75 Bombardier C Series airliners.
- Boeing filed a complaint with the US Commerce Department, claiming the Delta order was possible only because of Canadian government subsidies that lowered the planes’ prices.
- Delta CEO Ed Bastian says Boeing was complaining because it couldn’t win in the marketplace.
- He also said the C Series had more US parts than the Boeing 787 Dreamliner.
Delta Air Lines’ CEO, Ed Bastian, is speaking out against Boeing’s claims that its business was harmed by the airline’s order of 75 Bombardier C Series jets in 2016.
Boeing filed a complaint with the US Commerce Department in April claiming that its business was harmed when Delta received unnaturally low prices on the Bombardier jets made possible only through Canadian government subsidies.
In filing its complaint with the Commerce Department, Boeing took a major risk in alienating Delta, arguably the world’s largest operator of Boeing aircraft. When asked, Delta CEO Ed Bastian seemed to be truly baffled by why Boeing would want to pick such a fight.
“I haven’t gotten a good answer,” he told Business Insider in a recent interview. “I’ve asked Boeing that question many times.”
Some in the industry believe Boeing went on the offensive to snuff out an up-and-coming competitor in Bombardier. That’s something it failed to do in the 1970s when a fledgling Airbus entered the US market.
Bastian, however, has another theory.
“Boeing, as has Airbus, has tried to do everything it can to keep the [C Series] from the market through conventional means – through marketing, pricing, and with United they gave them a huge bargain on the 737-700 to avoid them taking the Bombardier plane,” he said.
“When they could no longer win in the marketplace, and they couldn’t win in the marketplace with us because they didn’t have anything we wanted, they went to the government,” Bastian told us.
Delta and its quest for a good deal
For years, Delta’s fleet strategy has been to buy cheaper, older, and less fuel-efficient planes. This flew against conventional wisdom during the 2000s when oil prices were north of $US100 a barrel and the airline’s rivals were scrambling for new planes with better fuel economy.
Instead of investing in pricey new jets, Delta spent its resources reinforcing the airline’s highly respected maintenance department. So when the fuel prices plummeted, Delta was left with cash on hand to spend at its leisure.
Since 2013, the airline has sped the acquisition of new aircraft that are more efficient and cheaper to maintain. This includes spending tens of billions of dollars on Airbus A321ceo/neo, A330ceo/neo, and A350XWB jets.
But it is Delta’s 2016 order for 75 next-generation Bombardier C Series jets that has everyone in the aviation industry talking. The order set up Delta to be the 100-seat airliner’s North American launch customer and its largest operator in the world.
“It’s innovation in the marketplace. It’s a wonderful technology,” Bastian said of the Canadian jet renowned for its advanced carbon construction, spacious cabin, and fuel-saving engines.
Delta certainly got a great deal on the planes. But Bastian doesn’t think it is anything out of the ordinary.
“As a launch customer, we got launch-customer pricing just like every single launch customer on every single aircraft product whether it’s made by Boeing or Airbus or Embraer or Bombardier,” he said. “I don’t see how Boeing can justify harm when they don’t have the product. That has mystified me all along.”
Boeing hasn’t a produced a 100-seat airliner in more than a decade. According to Delta, Boeing could offer only 20 secondhand Brazilian Embraer regional jets in place of the C Series.
The Bombardier C Series is good for America
By early October, the Commerce Department proposed that a 299.45% tariff be levied on the C Series jets bound for Delta.
“We’re not going to pay the tariff, and we are going to bring the aeroplane in,” Bastian told us, adding that the C Series had more “US content” than the Boeing 787.
“So Boeing needs to really pay attention to what they are saying,” he added.
On October 16, Airbus acquired a controlling interest in the C Series program and announced that aircraft bound for US customers would be assembled at its plant in Mobile, Alabama. US assembly is a potential workaround if the tariff is indeed enforced.
“The C Series is north of 50% US content even before final assembly,” Bastian said. “With the final assembly (in Alabama) that number is closer to 60%.”
“I think the Airbus investment in the C Series is brilliant,” Bastian added. “It will bring more jobs back to the US. The fact that you’re going to have final assembly in Mobile is good for our country, good for Alabama, and good for Delta certainly.”
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.