Bombardier wins court case against supplier Honeywell on engine costs

A Quebec Superior Court judge says engine supplier Honeywell International Inc. must negotiate with Bombardier Inc. on the cost of the engines it manufacturers for the Montreal-based plane maker. (THE CANADIAN PRESS/Graham Hughes)

MONTREAL — Engine supplier Honeywell International Inc. must negotiate with Bombardier Inc. on the cost of the jet engines it rolls out for the Montreal-based plane maker, a Quebec Superior Court judge has ruled.

Handed down last month, the decision marks the latest development in an eight-year dispute between the partners.

The judge found that Honeywell has an obligation to negotiate in good faith with Bombardier with the goal of reducing the price tag on propulsion systems installed in its Challenger business jets.

The ruling also requires the U.S. manufacturer to hand over a sheaf of sales records to an independent auditor, who will assess whether the company sold turbofan engines to rivals at lower rates, which the contract with Bombardier prohibits.

Honeywell has filed a motion to appeal the decision, a move Bombardier is contesting.

Bombardier first sued Honeywell in 2016, soon after competitors began looking to get in on the market for a long-range "super mid-size" business jet that Bombardier had carved out.

"With the arrival of competitors Bombardier's relationship with Honeywell became strained," Justice David Collier wrote. "Bombardier's market share for super mid-size jets fell as competitors entered the market, while Honeywell became the sole engine manufacturer for all four competing OEMs (original equipment manufacturers)."

Starting in the 1990s, Honeywell began to design and build engines exclusively for Bombardier, but later began supplying similar systems to Bombardier rivals Gulfstream Aerospace Corp., Embraer S.A. and Textron Inc., the decision notes.

Bombardier has argued that the North Carolina-based aerospace giant then hiked the price of engines for Bombardier despite a contractual obligation to improve them while reducing costs over time. It also claims Honeywell was selling engines to rivals on more favourable terms, despite a provision that Bombardier would benefit from the best price.

Honeywell has said the aim of boosting engine performance while slashing costs was "aspirational," and has denied Bombardier's right to an audit to confirm whether better deals were made with competitors. It also argues it has not sold the same engine to competitors, insisting that the HTF7000 engine models had adaptations specific to each company.

However, the evidence shows "there is considerable similarity" between the engines sold to all four companies, the judge stated, saying the contract's provision around best prices for Bombardier therefore applies.

Honeywell's argument boils down to a guarantee that Bombardier gets the best price for products sold specifically to the company rather than the overall best price, the judge wrote, calling that "a manifestly absurd result."

"Honeywell's textual argument has the effect of guaranteeing that Bombardier will get the best price for the products sold to Bombardier — a manifestly absurd result," the judge wrote.

The agreement establishes that Bombardier and Honeywell agreed to protect Bombardier's competitive advantage, given its $18-million investment in developing the product and its status as the "launch customer." Before the Challenger, Honeywell had not produced a new engine in more than a quarter-century, according to one expert cited by the judge.

“Bombardier welcomes this decision by the court and will continue to pursue the matter, seeking appropriate compensation per the contracts in question," the company said in an emailed statement.

Bombardier is seeking $447 million in damages from Honeywell over claims it overpaid between 2012 and 2017. It is also seeking to slash the price in future years.

The court has not handed down a ruling on damages.