ANALYSIS: Is Russian bid for Q400 assembly a done deal?

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Rostec chief executive Alexei Federov sounded quite confident last week about securing a deal to assemble the 70-seat Bombardier Q400 turboprop in Ulyanovsk, Russia.

Bombardier agreed to discuss such an arrangement only four months ago at the MAKS air show outside Moscow, but Federov was widely quoted by Russian media saying that assembly is already set to begin in August, with locally-built Q400s delivering to Russian airlines in 2015.

In Montreal, however, the Q400’s still-lone manufacturer was unable to muster the same optimism. Instead, Bombardier released a statement contradicting their potential new strategic partner, while carefully phrasing it possibly to avoid causing offence.

“I can confirm that discussions are going very well between Bombardier and Rostec,” says Bombardier spokesman Marc Duchesne. “We are both working towards a conclusion of the definitive agreement. As of today I’m not prepared to comment on any of these dates and details.”

In reality, the process of launching a second assembly line is a complicated and even risky proposition, and not one Bombardier will march into without careful planning.

There are several models for duplicating final assembly lines in other countries. Airbus, for example, established a third A320 final assembly line in Tianjin, China, but retained full ownership and control inside an exclusive economic zone.

The negotiations between Bombardier and Rostec may offer more complications. If the Russians, for example, seek to save costs by establishing the second Q400 assembly line using Bombardier’s original production certificate, any quality issues that arise from the Ulyanovsk plant could put the entire fleet at risk, including aircraft delivered Bombardier’s facility in Toronto.

Such risks presented too many challenges for Bombardier competitor ATR. Rostec reportedly had discussed a similar opportunity to build the ATR 72-600 at Ulyanovsk. But ATR chief executive Filippo Bagnato dismissed the offer.

A final assembly joint venture “in the middle of nowhere” is very hard to do successfully, because final assembly is the “final filter” before the aircraft reaches the customer, Bagnato says.

Toronto has been the home of regional turboprops spawned by the de Havilland Canada Dash 7 and Dash 8 series for more than 40 years. The Q400 model of the Dash 8 series arrived about a decade after de Havilland Canada was acquired by Bombardier in 1992. It enjoyed a decade of steady sales support, with more than 1,100 deliveries since 2001.

But demand in the turboprop market has shifted to the slower and cheaper ATR 72-600, leaving Bombardier currently with a slightly less than a full year of sales backlog with only 26 aircraft, according to Flightglobal’s Ascend Online database.

Meanwhile, Russia has presented itself as a tempting market to Bombardier’s sales team for several years. First, Russia shares an undeniable geographic and climatic symmetry with Bombardier’s northern, sprawling homeland. Russian regional carriers also have hundreds of ageing regional turboprops of Soviet vintage that are ripe for replacement.

In some market forecasts, such as the Japan Aircraft Development Corporation’s 20-year outlook through 2032, Russia alone ranks as the third-largest market for new turboprops in the world, falling only behind the entire regions of the Asia-Pacific and Latin America.

Potential regional rivals within Russia to the Q400, such as the Antonov An-140 and Ilyushin Il-114, are deemed unsuitable or simply unavailable. Uzbekistan’s Tashkent Aviation Production Organisation (TAPO) has vowed to restart Il-114 production after emerging from bankruptcy in November, but its viability has long been a question.

In 2012, Bombardier gained Russian type certification for the Q400, which was hoped to quickly attract sales. But regional turboprops are subject to an import tax in Russia.

The solution to this dilemma appeared to arise at MAKS, when Bombardier agreed to negotiate local assembly of the Q400 in exchange for a three-digit firm order by Russian customers.

If the particulars of the shared Q400 assembly system can be agreed, Bombardier would undoubtedly gain orders for its dwindling backlog. Fedorov has named Siberian carriers Yakutia and Alrosa as potential launch customers, among about 20 Russian airlines he claims have expressed interest.

Dan Thisdell and Tom Zaitsev contributed to this report.