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Old 20th Feb 2016, 20:02
  #104 (permalink)  
peekay4
 
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Large discounts vs. list is standard practice in many industries. In the airline business no one buys just one single plane without numerous additional contract items (parts, training, services, options, guarantees, etc).

Thus when an airline comes to buy 40-50 planes, the single plane list price is basically irrelevant. Similarly when Hertz talks to Ford or Toyota to negotiate a huge fleet of rental cars, that deal isn't going to be based on the MSRP of a single car.

In the secondary (used) market, the large initial discount is already priced in -- as one factor among many -- and reflected as the residual value of the aircraft.

What A & B are doing is called competition, a word sadly lacking in the vocabulary of most Canadian conglomerates. A & B are not selling at a loss prevent the CSeries from entering the market. That would be illegal under antitrust laws, and I have not heard Bombardier allege either A or B of doing so.

What A & B can do is to put together very sweet packages for their potential customers, because they have a large range of aircraft and services to sell.

E.g., the United Airlines mainline fleet has a dozen different Boeing variants, a couple of Airbuses, and zero Bombardier products. It's an uphill battle for Bombardier to sell into United mainline, but still not impossible for them to do so if they can offer a more compelling total deal than Boeing can.

In the Air Canada sale the total deal included incentives from other than Bombardier, such as Quebec's agreement to drop a lawsuit, plus perhaps other incentives we don't even know about (special financing, tax breaks, etc.). And the deal was likely made possible based on close business and personal relationships between the players.

While those incentives and relationships are great to get this critical deal done, the problem is they cannot easily be replicated elsewhere. Quebec can't offer to drop some lawsuit against Delta, for example.

So the big question then was the Air Canada sale indicative of a sustainable business model for the CSeries, or was more of a "one off" based on special circumstances?
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