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Currency, United States Finance

Boeing versus Bombardier: Here’s what happens next

Washington has slapped a 300 percent trade tariff on Bombardier, accusing the Canadian aerospace firm of both receiving state aid and potentially “dumping” its new plane on the U.S. market.

The U.S. Department of Commerce (DoC) issued the preliminary ruling last month after Boeing requested action, fearing Bombardier’s C-Series jet could hurt profit levels at the U.S. aircraft manufacturer.

Now Bombardier has struck a deal with European aerospace giant Airbus, who have agreed to develop, market and sell the Bombardier jet.

CNBC takes a look at how the situation unfolded and what is set to happen next.

The dispute centers on alleged illegal subsidies that Bombardier received for its C-Series program, a 100 to 150-seat jet that has been in the skies since 2016.

The U.S. commerce department, with the support of U.S. President Donald Trump, took up a Boeing complaint that Bombardier received state aid as far back as 2008 in order to make the program a success. Boeing’s second part of the complaint was that Bombardier could potentially “dump” the aircraft to buyers at below-market prices.

The DoC asked Bombardier to provide information but the Canadian company refused, claiming it would provide rivals with a look into its business and pricing structure.

After this refusal, U.S. authorities upheld the Boeing complaint and issued Bombardier with a preliminary 300 percent anti-dumping tariff on its C-Series.

The CS100 and CS300 versions of the Bombardier plane are in use by Swiss Air and Air Baltic. In the United States, Bombardier has sold 75 of its new C-Series planes to Delta Airlines.

Fred Cromer, president of Bombardier Commercial Aircraft, told CNBC in June that Boeing was attempting to stifle further Bombardier sales and that the wider industry viewed Boeing’s litigation as “an attack on innovation.”

Cromer added that Boeing doesn’t even produce a plane that serves 100 passengers and so the complaint has little merit. He speculated that the Boeing move was likely designed to railroad airlines toward bigger planes.

Boeing has claimed that Bombardier’s deal with Delta Airlines will see 75 C-Series planes sold for $19.6 million apiece, way below production cost.

Bombardier and Delta refuse to reveal the true sale price, claiming commercial sensitivity but Cromer told CNBC the numbers quoted by Boeing “are way off base.”

Airbus, European aircraft manufacturer and Boeing’s main rival, has entered the fray by announcing Tuesday that it is to take a majority stake in the C-Series jet program.

No money is involved in the deal, but while Bombardier relinquishes control of its own program, it will use the opportunity to retain a share in a plane program that previously looked under threat of failure.

Airbus will offer improved economies of scale for the plane development as well as opening up the C-Series to a larger sales network.

Crucially, the C-Series could also now be built at Airbus’ U.S. plant in Mobile, Alabama, which would mean the plane would not be subject to any anti-subsidy or anti-dumping duties.

Analysts at Kepler Cheuvreux said the deal looked good for Airbus as long as orders bounce upwards from the current level of 346 planes.

Shares in Airbus rose more than 2.4 percent on the news.

Aside from impacting relations between Canada and the United States, the dust-up has also affected the U.K. and Brexit.

Bombardier has a plant in Northern Ireland that employs 4,000 people. The firm says jobs could go if Bombardier is negatively impacted by Washington-imposed taxes.

Northern Irish support is currently crucial to the stability of a fragile U.K. coalition government and the situation has forced London into strong rhetoric.

U.K. Prime Minister Theresa May has said she is “bitterly disappointed” by the move to impose a tariff while the U.K. defense secretary has said the move jeopardizes Boeing’s chances of winning British government contracts.

The situation is an awkward one for May, who at the same time is keen to maintain and develop trade ties with both Canada and the U.S. as it exits the European Union.

As it stands, the 300 percent tariff on the C-Series deliveries in the U.S. is a preliminary ruling.

A final DoC ruling will follow in December and then in February 2018, the separate International Trade Commission will release its decision.

If both groups agree that the U.S. is either being harmed or could potentially be harmed by both program subsidies and future “dumping”, then a tariff of 300 percent will be applied on C-Series deliveries to the U.S. market from February onwards.

That would mean a C-Series Bombardier plane that Boeing claims cost Delta $19.6 million apiece would now cost $78.3 million.

Source: cnbc
Boeing versus Bombardier: Here’s what happens next

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