Going up against Boeing and Airbus in the commercial aircraft business was never going to be easy for Bombardier Inc.
The job just got a whole lot harder this week after Chicago-based Boeing Co. asked the U.S. Commerce Department this week to hit Bombardier's C Series jets with steep duties for allegedly selling planes at less than what they cost to build and benefiting from illegal government subsidies.
Finding buyers for the C Series was already a slog. If Boeing gets its way, Montreal-based Bombardier could now face a crushing 160-per-cent tax on every C Series aircraft it sells in the United States, including the 75 jets it is poised to start delivering to Delta Air Lines Inc. – its first major U.S. customer.
Given the frosty relations between Ottawa and the Trump administration right now, it's a safe bet Boeing will get a sympathetic hearing in the case.
It's worth recalling that U.S. President Donald Trump was at a Boeing plant in South Carolina in February for the rollout of the latest version of the company's 787 Dreamliner. "We are going to fight for every last American job," Mr. Trump promised employees.
Welcome to the Big Boys' aerospace club, where perpetual trade litigation, cutthroat competition, massive subsidies and political intrigue are all part of the game. And the price of admission.
A showdown with Boeing will make Bombardier's earlier clashes with Brazilian-based aircraft-maker Embraer in the smaller end of the commercial jet market look like a minor spat.
The dispute opens up a troubling new area of trade friction between Ottawa and Washington, which are already at odds over dairy, lumber and renegotiating the North American free-trade agreement. An aircraft trade war is just about the last thing Bombardier or the Trudeau government need right now.
Both are naive if they did not see this coming – in one form or another. The U.S. government's 2017 National Trade Estimate Report on Foreign Trade Barriers, released earlier this month, contains a full page of gripes about Canadian subsidies to the aerospace industry, including Bombardier. "The United States will continue to monitor carefully any government financing and support of the C Series aircraft," the report warned pointedly.
The U.S. government has already signalled it will join a World Trade Organization case launched by Embraer over subsidies to the C Series as "a third party."
It's just the way things are in the aerospace industry, where the lines are often blurred between government and the private sector. Boeing and France-based Airbus have been fighting for more than a decade at the WTO over allegations of unfair government aid. Boeing grumbles about "launch aid" from European governments for new Airbus planes, while Airbus claims Boeing gets backdoor support in the form of tax breaks and military contracts.
Bombardier should have known that Boeing and Airbus would come after the company hard – both through litigation and in the marketplace. Unlike Bombardier's regional jets, the C Series is targeting a lucrative piece of these companies' core market of narrow-body transcontinental planes, such as Boeing's 737Max and the Airbus A319neo.
They would love to see Bombardier, and its more fuel-efficient C Series, fail.
A key question now is whether Bombardier has the financial fortitude to weather this latest storm.
Anti-dumping and countervailing-duty cases can take years to litigate, and the rules are stacked in favour of the host country's industries. Preliminary duties are often higher than final duties and they remain in place while the two sides haggle over the evidence. This would make Bombardier planes much more expensive for potential U.S. buyers, while spreading nervousness elsewhere.
It's a pattern familiar to Canadian lumber producers, who are facing their fifth U.S. trade war since the 1980s. Even cases that eventually fall apart can cause permanent damage to companies and their employees.
And given the close integration of the two economies, there is no clear-cut winner. Bombardier has pointed out that it spends $3-billion (U.S.) a year buying supplies in the United States and has 7,000 employees in 17 states. Indeed, more than half of each C Series plane is made in the USA.
Canada was the fourth-largest market for U.S. aerospace exporters in 2015, buying nearly $9-billion worth of products. And according to a 2016 report by the U.S. International Trade Administration, "U.S. exporters to Canada face virtually no barriers to market entry."
But that may not matter in Boeing's quest for commercial jet supremacy.
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