Skift Take

There's little doubt Bombardier needed a lot of government assistance to finish the C Series. What's less clear is how much Boeing was harmed. Boeing's smallest 737s have some overlap with Bombardier's new plane, but they're not direct competitors.

The U.S. slapped duties on Bombardier Inc.’s showcase commercial jet for the second time in as many weeks, upholding Boeing Co.’s case that its Canadian competitor sold planes at less than fair value.

The Commerce Department imposed a preliminary import duty of 80 percent on Bombardier C Series aircraft based on its finding, according to an emailed statement Friday. The agency ruled last week that the Montreal-based planemaker, which invested more than $6 billion to develop the all-new C Series, benefited from unfair subsidies.

The second round of import duties marks the latest blow for Bombardier, which received financial support from Quebec and Canada as its biggest jet came in two years late and about $2 billion over budget. The ruling is also bound to stoke tensions between the U.S. and two key allies, Canada and the U.K., which have expressed dismay with the Commerce Department.

Both charges — last week’s 220 percent countervailing duties and Friday’s anti-dumping restrictions — could be reversed by the U.S. International Trade Commission if the tribunal concludes that Boeing wasn’t injured by Bombardier’s jet program, a decision expected to be made next year. The Commerce Department also still needs to issue a final ruling in both cases.

Bombardier rose less than 1 percent to C$2.21 at the close in Toronto. The shares are 2.6 percent lower than their level before the initial Commerce Department ruling last week.

‘Protectionist’ Measures

Canadian Foreign Affairs Minister Chrystia Freeland said she was “extremely disappointed” in the latest U.S. decision, vowing to defend the country’s aerospace industry against “irresponsible and protectionist trade measures” that also hurt some U.S. workers.

“These anti-dumping duties on Bombardier’s C Series aircraft unfairly target Canada’s highly innovative aerospace sector and its more than 200,000 workers,” Freeland said in a statement. The measures also “put at risk the almost 23,000 U.S. jobs that depend on Bombardier and its suppliers.”

The controversy is likely to hang over Prime Minister Justin Trudeau’s trip to Washington next week, where he is scheduled to discuss trade with President Donald Trump just as negotiators hold the fourth round of talks to amend the North American Free Trade Agreement. Trudeau has warned that his government won’t buy Boeing military jets unless the company drops the case.

‘Bitterly Disappointed’

British Prime Minister Theresa May said she was “bitterly disappointed” by last week’s decision, considering Bombardier employs more than 4,000 people in Northern Ireland. U.K. Trade Secretary Liam Fox and Irish Foreign Minister Simon Coveney have discussed the matter with U.S. Commerce Secretary Wilbur Ross this week.

The U.S. will begin collecting preliminary duties to offset the difference between the sales price and fair value, the Commerce Department said in its latest decision. The ruling applies to exports of 100- to 150-seat Canadian aircraft.

“This determination confirms that, as Boeing alleged in its petition, Bombardier dumped its aircraft into the U.S. market at absurdly low prices,” the U.S. planemaker said in an emailed statement. The C Series wouldn’t exist without the assistance of the Canadian and Quebec governments, according to Chicago-based Boeing.

Delta Order

Delta Air Lines Inc. placed an order last year for at least 75 of the CS100 jets, the smaller C Series variant, in a deal with a list value of more than $5 billion. Deliveries are expected to begin next year.

Bombardier called the Commerce Department’s ruling “an egregious overreach” that ignored the need in the aerospace industry to invest billions in hopes of a long-term payoff.

“Boeing’s own program cost-accounting practices — selling aircraft below production costs for years after launching a program — would fail under Commerce’s approach,” Bombardier said in a statement. “This hypocrisy is appalling.”

The Canadian manufacturer said it was confident the International Trade Commission would find that Boeing suffered no injury from the C Series. It has argued that Boeing doesn’t make planes that compete with the aircraft — an assertion backed up by Delta.

“Boeing had the chance to compete with Bombardier for Delta’s purchase of aircraft in this size range, but Boeing’s only proposed alternative to the CS100 was to offer Delta used Brazilian-made regional jets,” the Atlanta-based airline said in an emailed statement, reaffirming its view from last week. “Boeing has no American-made product to offer because it canceled production of its only aircraft in this size range – the 717 – more than 10 years ago.”

WTO Case

The typical capacity of the CS100 ranges from 108 to 133 seats, according to Bombardier. The larger C Series version, the CS300, can hold as many as 160 seats. The smallest of Boeing’s upgraded 737 Max planes will have between 138 and 153 seats, or as many as 172 in a dense configuration, according to Boeing’s website. The 737 is the biggest source of profit for the U.S. company.

In a separate case, the World Trade Organization last week approved Brazil’s request to investigate Canada’s alleged use of more than $3 billion in government subsidies to produce Bombardier aircraft.

The South American nation began WTO consultations in February, saying Canada ran afoul of trade rules because its policies unfairly bolstered the domestic aerospace industry to the detriment of Embraer SA, an airplane producer based in Sao Jose dos Campos, Brazil.

Bombardier said it was “confident that the investments and contribution programs mentioned in Brazil’s petition are in full compliance with all WTO and international trade rules.”

©2017 Bloomberg L.P.

This article was written by Frederic Tomesco and Andrew Mayeda from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to [email protected].

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Tags: airline innovation, Boeing, bombardier, C Series, delta air lines

Photo credit: The U.S. Commerce Department proposed a new tariff on Bombardier jets. This is potentially a problem for Delta Air Lines, which ordered 75 of them last year. Jasper Juinen / Bloomberg

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