Pontifications: Airbus approaches 800 A220 sales, but major challenges persist
August 15, 2022, © Leeham News: Airbus now has nearly 800 orders for the A220, but the program is years away from profitability and production faces supplier challenges like those faced by the Airbus A320neo and the Boeing 737 MAX.
The passenger experience easily surpasses older A320 and 737 designs. The A220’s 2×3 seating, 18.5-inch window/aisle seats, 19-inch-wide center seat and wide aisle draw kudos . The windows are larger than older aircraft. The savings are better than promised by Bombardier, which designed the aircraft as the C Series.
Exit from commercial aviation
Development costs, the neglect of the Bombardier Q400 and CRJ programs and the simultaneous development of two new business jets nearly bankrupted Bombardier. To save itself, Bombardier quit commercial aviation and killed one of two business jet developments. The Q400 program was sold to Longview Aviation, which renamed the turboprop to its original name, the Dash 8-400, and adopted the legacy company name, De Havilland Canada.
The CRJ program was sold to Mitsubishi Heavy Industries. MHI had little interest in the CRJ regional jet. The interest was to acquire the CRJ worldwide product support and MRO system as the basis for the M100 SpaceJet he was developing. (MHI then changed CEOs in its management rotation policy. The new executives killed the SpaceJet program, the reason they bought the CRJ in the first place.) Last year, MHI seriously considered restarting production of the CRJ. This idea was only abandoned last month.
The C-Series was sold to Airbus in 2017, the first of Bombardier’s commercial programs to disappear. The impetus was a complaint filed by Boeing with the US Department of Commerce in 2017. While the Department was evaluating the complaint, Bombardier agreed to sell 50.1% of the program to Airbus. BBD has pledged to fund the construction of an assembly plant at Airbus’ Mobile (AL) complex and cover up to $700 million in losses. (Commerce eventually upheld Boeing’s complaint and imposed a 292% tariff. But the review required by the Court of International Trade found that Boeing suffered no prejudice in a deal with Delta Air Lines that triggered the complaint. The CIT finding killed the tariff.)
Bombardier was unable to meet its commitments to Airbus, which eventually bought out the remaining part of the program from Bombardier. (A pension fund in Quebec, Canada, still retains about 25% ownership of the program.)
Lower the costs
Airbus acknowledged that the cost of producing the C-series by Bombardier was a challenge. LNA in 2016, Bombardier’s estimated cost, including general and administrative (G&A) and other overhead, was approximately $33 million. Airbus concluded at the time that the cost of the aircraft was around $24 million.
In its complaint alleging dumping of Bombardier’s prices with the Delta deal, Boeing calculated that before credits, the price for Delta was $24 million and $19.6 after credits. Bombardier, which took an “onerous contract fee” of $500 million for Delta and Air Canada sales, claimed Boeing’s figure was millions of dollars too low. (Remember that G&A and other overhead costs are not included in the $24 million cost.)
Market information indicates that Airbus is struggling to cut costs. Raytheon Technologies’ Pratt & Whitney and Collins Aerospace units would be particularly difficult. Thus, other information indicates that Airbus increases the selling price of the A220 to around 40 million dollars. This figure pushes direct operating costs to levels that are difficult for some operators.
Headlines and articles about delays experienced by Airbus and Boeing focus on the A320neo, 737 MAX and widebody ranges. Supply chain issues also affect the A220. Recent deliveries were about six weeks late. Traveling jobs, due to missing supplier parts, are partly to blame.
Quality control issues are cited by at least one customer taking A220s from the new Mobile (AL) assembly plant, which opened in 2020. The final assembly line is still young in the process complex of the aerospace learning curve. Mobile’s first A220 was assembled on a shared line with the A320/321neo line.
Airbus has publicly stated that it needs to increase the production rate up to 14/month between the Montreal and Mobile plants as part of efficiency and cost reduction to achieve profitability. How the $40 million sale price can accelerate break-even has not been calculated outside of Airbus. However, when Bombardier still owned the C-Series, an insider said it would take 1,200 sales to break even, given cost overruns of $2 billion at the time. A normal aircraft program (of which there have been few in recent years) aims for 400 sales to break even.
Bombardier designed a CS500 when it developed the C-Series. The CS500 would be a direct competitor to the A320neo and the 737-8. Under the Airbus brand, the aircraft is known as the A220-500. Officials have made it clear that this model will only be launched after 2025, when profitability will be achieved.