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Commentary Bombardier, Boeing, Ottawa and a whole lot of baloney

There is a lot of baloney flying around in Boeing's highly sensational trade case against Bombardier.

Baloney from Boeing, which claims its very survival is threatened if its Canadian rival's "subsidy-enabled" C Series is a success. Baloney from Bombardier, which claims the C Series does not even compete with any of Boeing's planes. And if not baloney, at least egg on the face for the federal government, which has now suspended talks on a deal to buy Super Hornet fighter jets from the U.S. aerospace giant – a likely pressure tactic to get Boeing to lay off a beleaguered Bombardier.

It would be astonishing if the U.S. International Trade Commission – which is currently reviewing Boeing's anti-dumping petition – swallowed any of this baloney. But that doesn't mean the USITC will not rule in Boeing's favour in a preliminary determination, expected on June 12. All it needs to establish by then is that there is "reasonable indication" that Bombardier's subsidized planes have caused "material injury" to Boeing.

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Read more: Ottawa suspends talks with Boeing over Super Hornet jet purchase

A preliminary finding of injury by the USITC would be a major blow to Bombardier as it seeks to ramp up desperately needed C Series orders. There have been no such deals worth mentioning since Delta Airlines ordered a whopping 75 of the planes in early 2016. And there would likely be none forthcoming – at least from U.S. airlines – with the threat of 160 per cent duties looming.

Bombardier counters Boeing's complaint represents "unprecedented overreach" by a company several times its size and that "does not even make a product that competes with the aircraft" the Canadian aerospace maker sold to Delta and earlier offered to United Airlines. But Boeing says it beat out Bombardier for the United deal only after "drastically cutting its prices … to compete with Bombardier's subsidized offering for the CS100."

Boeing says sales of the 737-700 and its newer version, the 737 MAX 7, have been harmed by the C Series.

Bombardier counters that the CS100s that Delta bought seat only 109 passengers, while the 737 MAX 7 seats 138. Hence, it adds, the two planes are not direct competitors.

But the Delta order includes an option to buy CS300s. That model does directly compete with the 737 MAX 7. And Bombardier has pitched the C Series as an alternative to the MAX 7 in promotional materials. So, its "Who? Us?" claim to have avoided Boeing's airspace is untenable.

What is really relevant in this case, however, is whether Boeing was forced to sell aircraft at a loss to United, and was subsequently outbid by Bombardier on the Delta order, only because of "illegal" subsidies received by the Canadian company. Boeing contends in its USITC filings that "the C Series would not even exist without subsidies; that subsidies allowed Bombardier to avoid bankruptcy; and that subsidies gave Bombardier the wherewithal to offer United and Delta unprecedented pricing that drastically depressed prices in the entire market."

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Not all subsidies are illegal under international trade law. After its subsidies to Bombardier were successfully challenged more than a decade ago by Brazil's Embraer, Ottawa restructured aid programs in the aerospace sector to withstand trade complaints. Hence, federal loans to Bombardier that cover research and development expenses are not considered illegal.

The Quebec government's $1-billion (U.S.) investment in the C Series is more problematic, although its timing (when Bombardier was on the verge of bankruptcy) is more controversial than its actual form (an equity stake, similar to the stakes several European governments hold in Airbus).

Still, it's a stretch for Boeing to claim the C Series is to blame for its current woes in the 100- to 150-seat market, a segment the U.S. giant has largely neglected in recent years. Airlines have taken a pass on the 737 MAX 7 – the last order was in 2013, from Canada's own WestJet – because it's an updated version of an older plane considered less attractive than Airbus's A319neo, and with much higher operating costs than the all-new C Series.

What, then, is Boeing's end game in launching this trade complaint?

Delivering a warning shot to Bombardier to stay out of the 150-seat-plus market is one likely goal. If the C Series is successful, a stretched version of the C Series – a CS500 – would be the next logical step in Bombardier's product development pipeline. And a CS500 would constitute a genuine threat to Boeing.

Boeing may also be seeking to gain leverage with Ottawa as it not only negotiates a deal to sell the feds 18 Super Hornets, but positions itself for a much larger contract to replace Canada's entire fleet of aging CF-18 fighter jets. It's a bit rich for the Liberal government to threaten to cancel the contract to purchase 18 Super Hornets before it's even signed, since Prime Minister Justin Trudeau campaigned on a pledge not to buy Lockheed Martin F-35s. And unless Mr. Trudeau is willing to paint himself into an even tighter political corner and risk a procurement boondoggle, pulling the plug on the Super Hornet deal would create far more problems than it solves.

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Boeing can still withdraw its complaint against Bombardier. But it won't do so without getting something in return.

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