Bombardier Inc., a crown jewel of Canadian manufacturing, is billing itself as a major U.S. employer in a bitter trade fight with Boeing Co. that has profits, diplomatic ties and the future of a fledgling aircraft on the line.
The maker of the narrow-body jet at the heart of the dispute has assembled an influential group of U.S. politicians, vendors and customers to back its side in a case brought by Boeing, which reaches a critical hearing next week in Washington, D.C. Bombardier says more than half its all-new C Series aircraft is made in U.S. factories even though final assembly takes place near Montreal.
The U.S. International Trade Commission is slated to hear arguments Dec. 18 on whether American industry was harmed by Bombardier’s sale of its jet to Delta Air Lines Inc. at what Boeing calls an unfairly low price – enabled in part by subsidies in Canada. The U.S. Commerce Department sided with Boeing in a preliminary ruling in October and ordered tariffs of about 300 percent. Delta has vowed not to pay.
While President Donald Trump likely won’t intervene directly in the case, the dispute is a test of his pledge to enforce U.S. trade laws more strictly while also encouraging foreign investment.
Companies in other industries will be watching closely. A U.S. solar-panel maker is pushing for import tariffs, while steel producers are calling for a crackdown on shipments from China. The U.S. must also decide on washing-machine tariffs after a complaint brought by Whirlpool Corp. against Samsung Electronics Co. and LG Electronics Inc.
The Bombardier case has already bruised U.S. relations with Canada and heightened tensions in the talks to overhaul the North American Free Trade Agreement. Canadian Prime Minister Justin Trudeau, who has aggressively defended Bombardier and discussed the matter with Trump, dropped the planned purchase of 18 Boeing fighter jets because of the dispute.
The British government warned Boeing it could lose defense contracts. Prime Minister Theresa May said she was “bitterly disappointed” by the tariffs, which threaten about 1,000 jobs in Northern Ireland.
For Montreal-based Bombardier, a loss would make other U.S. carriers hesitant about buying the C Series and could potentially prompt Delta to drop the order, said Addison Schonland, a partner at consultant AirInsight.
The ITC ruling, expected in late January, is also critical to the company’s medium-term profitability as it prepares to deliver planes to Delta. In April 2016, the No. 2 U.S. airline ordered 75 of Bombardier’s CS100 jets, which carry fewer passengers than Boeing’s smallest aircraft, and secured options for 50 more C Series planes.
The order has a list value of $5.6 billion before customary discounts. Bombardier hasn’t disclosed the price agreed to with Delta, nor has it revealed its unit costs in building the C Series.
Bombardier will need all the help it can get in challenging the world’s largest aerospace company, which has developed a strong relationship with Trump. Bombardier argues that more than half of the aircraft’s content is sourced from U.S.-based suppliers, including engine maker United Technologies Corp. Bombardier employs about 7,000 in 17 U.S. states, while Chicago-based Boeing has 142,000 workers in all 50 states.
The nationality of the C Series got even more complex after Boeing filed its complaint in April. That’s because its chief rival, Europe’s Airbus SE, announced plans in October to acquire a controlling stake in the program, throw its marketing heft behind the program and eventually open a second assembly line in Alabama.
“It’s a huge victory for President Trump and all that he has been trying to do to bring more foreign investment and jobs to America,” said U.S. Rep. Bradley Byrne, whose Alabama district stands to gain 400 to 500 Bombardier jobs in Mobile. “This is not anti-Boeing. It’s pro-American.”
Boeing, a major campaign donor, has plenty of friends of its own in Congress. It also spent $13 million to lobby in Washington during the first three quarters of 2017, compared with $1.1 million by Bombardier, according to data compiled by Bloomberg Government.
Still, Bombardier has won plenty of support from politicians who have company employees in their states or districts. Letters shared with Bloomberg show members of Congress from both parties have written to the ITC, as has the governor of West Virginia and various airlines.
“Bombardier has demonstrated an enduring commitment to the U.S., and its operations have had an unquestioned positive impact on our economy,” Arizona’s senators, John McCain and Jeff Flake, wrote in a Sept. 28 letter. The company has operations in Phoenix and Tucson.
Bombardier Chief Executive Officer Alain Bellemare and other top executives addressed the trade dispute Thursday during a presentation to investors in New York.
Bombardier has argued the C Series isn’t a comparable product to Boeing’s 737 and notes that Boeing didn’t formally take part in the competition that led to Bombardier’s sale to Delta. In a statement, Bombardier said Boeing is demonstrating “hypocrisy on launch pricing” by complaining about a tradition in the industry of giving major discounts to early buyers of a new aircraft.
Boeing disputes the view that the C Series isn’t a direct competitor. The seating capacity of the CS300, the biggest model, is comparable to that of the smallest 737 jets. In its own statement, Boeing said Bombardier has “willfully broken U.S. and international trade law by illegally dumping its government subsidized C Series jets, which pose a direct threat to the Boeing 737-700 and 737 Max 7.”
Besides bad blood between competitors, the case also threatens the very nature of the aviation industry’s global supply chain, aerospace observers say.
“If this gets carried to its fullest conclusion and if there is retaliation, then you are damaging the idea that jetliners are an asset that everyone wants to finance, like New York real estate with wings,” said Richard Aboulafia, an analyst at Teal Group. “This is a global industry and the idea of trade barriers is almost quaintly obsolete.”
Republished with permission from the Alabama NewsCenter.