Aviation experts say Boeing’s blocking of Bombardier’s CSeries jet could be strategically disastrous long-term for both Boeing and the U.S. One prominent analyst predicts a settlement to resolve the case before tariffs are imposed.
Leading aerospace analysts are highly critical of Boeing’s push to impose steep tariffs on U.S. sales of Bombardier’s small CSeries passenger jet, saying the case will damage the long-term interests of both Boeing and the U.S. aerospace industry.
“The free market and free competition are good for us,” said Adam Pilarski, a senior vice president with consulting firm Avitas and a leading aviation analyst. “Boeing shouldn’t want to move away from that, because to do so will hurt Boeing.”
So convinced is Pilarski that this prospect harms U.S. interests, he doesn’t believe the 220 percent tariff announced Tuesdayultimately will be imposed on the Canadian plane maker’s jets.
Pilarski anticipates that in the negotiations with Canada over the terms of the North American Free Trade Agreement (NAFTA), U.S. trade officials will find a way to settle the case before tariffs are imposed.
“I really don’t see it happening,” Pilarski said.
The danger for the U.S. is in setting a precedent for rivals to treat American aerospace companies badly, he said.
By pushing the case before the U.S. International Trade Commission (ITC) — a forum that’s unilateral and therefore clearly biased — rather than before an international tribunal, Boeing will only encourage countries like China, Russia and Brazil that have big aerospace ambitions and large home markets to do the same to Boeing in the future, he said.
“You are giving your real competitors an excuse to say, if the U.S. can do this, we can do it,” Pilarski said.
Richard Aboulafia, a prominent aviation analyst with the Teal Group, agreed, calling saying this week’s ruling “a tactical victory but strategically a disaster” for Boeing.
He said the immediate harm to Boeing is the likely loss of big defense contracts from the two most reliable military allies of the U.S.
The Canadian government has already put on hold a $5.2 billion deal that was all but finalized for Boeing F/A-18 jet fighters and related weapons systems.
The Canadians are known to be interested also in buying P-8 anti-submarine jets and Chinook helicopters from Boeing. For now, those possibilities are off the table, too.
And because the CSeries wings are made in Belfast, Northern Ireland, where 1,000 jobs are threatened, future U.K. defense buys are also at risk.
Aboulafia said the big winner from the Bombardier case may be Boeing’s European rival Airbus, which could win airliner orders from Delta Air Lines if the U.S. carrier takes sufficient offense at the U.S. tariff blocking a planned delivery of 75 CSeries jets.
As for Bombardier, while at times it’s been looked at askance by some Canadians outside its base in Quebec as a money pit undeserving of more government support, now national pride demands that Canada shore it up.
Canadian Prime Minister Justin Trudeau can market it personally, pointing potential buyers like the Chinese to clear evidence that it’s a great airplane: Boeing is afraid of it.
Pilarski is close to several top Boeing executives and has a long relationship with the company — having started at the Douglas Aircraft Company, he worked for Boeing briefly after the 1997 merger with McDonnell Douglas.
Yet in an interview he was clearly pained at Boeing’s tactics.
“This is letting a bully beat up others, in this case unnecessarily,” he said. “Bombardier is a niche player with a small domestic market. They’ll produce in a year maybe what Boeing will produce in a month.”
“It really hurts me to see this,” he added. “I’m an American. I know people at Boeing. It makes me ashamed. It’s moral bankruptcy.”
Boeing’s case against Bombardier is based on its receipt of government subsidies.
In 2008 and 2009, Bombardier received about $570 million in launch-aid loans from the governments of Canada, Quebec and the U.K., followed by a $1 billion equity investment in 2015 by the government of Quebec, which was granted a 49.5 percent share of the CSeries program.
The Commerce Department attributed147 percent of the total 220 percent tariff to that last billion-dollar investment.
Yet Pilarski dismisses that money as not an illegal subsidy but as a bailout of the company, which would have gone bankrupt otherwise.
He compared it to the multiple U.S. bailouts of its auto companies or, in aerospace, the 1979 federal bailout of Lockheed, all of which not only saved the companies involved but also resulted in the government getting its money back later.
Pilarski is also incensed that Boeing chose to rest its case on the sale of the CSeries to Delta — a shaky argument because Delta was looking for a smaller plane than Boeing had and so the company didn’t offer a jet in that competition.
Boeing argued that Bombardier offered the CSeries planes to Delta at a lowball price, well below cost.
Pilarksi points out that this is the way all commercial-airplane manufacturers operate, including Boeing.
New airplanes, like the 787 Dreamliner, are sold at well below cost, especially to marquee customers who provide strategic sales momentum.
Aboulafia sees irony in the fact that Boeing claims a threat to its smallest new airplane, the 737 MAX 7.
Most Read Business Stories
- Jobless benefits for some will exceed their wages, thanks to boost from coronavirus relief package
- Seattle-area small businesses applying for federal coronavirus loans see potential and problems
- GM and Bothell’s Ventec get $489.4 million order from U.S. for 30,000 ventilators in coronavirus fight
- Boeing urged by Washington's congressional delegation to take bailout money, pay workers
- Senators want details from Amazon on firing of New York coronavirus protest organizer
That plane has indeed sold poorly. It has only two big customers, one of which is WestJet, of Canada, which has not yet taken delivery of the aircraft.
“Seriously?” said Aboulafia. “The prospect for retaliation (by Canada) is all too easy.”
The future of the case may now lie more in the realm of politics than in the quasi-judicial proceedings underway at the Commerce Department and the ITC.
That process allows Commerce to negotiate with Canada a “suspension agreement” that would stave off the tariffs in exchange for concessions, which typically involve undertakings about future pricing.
Of course, the political backdrop is President Trump’s touting of an America First policy that promises to renegotiate existing trade deals. He has raised specific criticisms of Canada aside from the Bombardier case.
When Boeing filed its petition against Bombardier with the ITC in April, just months after Trump took office, the timing suggested to some that Boeing saw advantage in the political environment and the cozy relationship Boeing Chief Executive Dennis Muilenburg has developed with Trump.
Yet Pilarski sees Trump as a possible way out.
He suggested that with the president’s propensity to make transactional U-turns, Trump could “step in as a benevolent dictator” and come to an agreement that lets Bombardier off the hook while allowing him to go to Canada, sign a new NAFTA deal and seal the big F/A-18 jet fighter contract.
That’s the alternative to the triggering of a trade war now and more in the future, Pilarski said.
Late Thursday, Boeing chose not to add anything to the statement it issued after the Commerce ruling came down.
That statement said the ITC and Commerce process that will play out between now and February will follow its “longstanding, transparent course.”
“We have full confidence that this will continue to be a fair and fact-based investigation, and we look forward to its conclusion early next year,” Boeing said.