Extraordinary ‘preliminary’ decision to impose a 220% trade levy (subsequently lifted to 300%) on Bombardier aircraft sales to the US smacks of bullying.
This week’s decision by the US Department of Commerce has met with virtually universal disapproval, if not disbelief. One can understand Boeing’s annoyance that Bombardier may be guilty of selling aircraft well below cost of production. However, all aircraft manufacturers habitually offer customers significant price discounts. It’s just another way to stimulate sales.
Who would lose if this ruling comes into force? Delta’s plans to take delivery of the CSeries aircraft could be in jeopardy. Bombardier could find it hard to compete in a key market. Boeing stand to lose military business, as the Canadians have already made clear. Jobs in Northern Ireland would certainly be at risk. Passengers could be faced with higher fares, which definitely goes against the grain.
Boeing’s motivation
The CSeries does not currently compete directly with Boeing products, although this may change in the longer term if Bombardier has the mettle to develop the CSeries further. The CSeries is undoubtedly a fine aircraft, yet Bombardier is far from being Boeing’s major competitor. So, what is motivating Boeing to be so grumpy? After all, Bombardier employs close to 7,000 in the US and half of the value of the CSeries is US content built by US suppliers. The engines are 100% US made. Business generated by Bombardier for US suppliers from 2012 to 2016 amounts to a whopping $14bn.
Perhaps Boeing is unwilling to defend even the tiniest infringement of their market. Maybe Boeing’s complaint sends a signal to the emerging aircraft producers in China, Russia and Japan. ‘Don’t think you can just waltz into our back yard!’ The Americans argue that the Quebec government’s billion dollar injection of cash is a subsidy and not an ‘investment’.
The dispute has a long way to go and Boeing will need to demonstrate ‘material harm’ if they are to stand a chance of succeeding in their complaint. The next stage will be a decision by the US International Trade Commission. Failure to resolve the dispute at that stage would elevate the problem to the World Trade Organisation. Whatever happens, the final outcome is certain to be very different from the opening salvo of the Department of Commerce.
Who wins? Well, the lawyers already have years of work ahead of them on this one.
Image courtesy of Bombardier
