The Bombardier CS300 during a demonstration flight at the Paris Air Show at Le Bourget airport in 2015. (AP Photo/Francois Mori)

The Bombardier CS300 during a demonstration flight at the Paris Air Show at Le Bourget airport in 2015. (AP Photo/Francois Mori)

Boeing complaint to US: Bombardier unfairly subsidized

Related: Trade organization rejects most European claims against Boeing

EVERETT — Boeing’s top lawyers say the aerospace giant’s trade dispute with Canada’s Bombardier is about ensuring fair play in the high-stakes world of jetliner sales.

Boeing accused Bombardier of selling its new single-aisle CSeries airplanes to Delta Air Lines at cut-rate prices, which it could only do thanks to massive cash infusions since last year from the Canadian and Quebec governments. Boeing says it would have to sell 737s at a loss to compete with the low-ball prices.

In April, Boeing filed a complaint with the U.S. International Trade Commission, accusing Bombardier of dumping its airplanes in the American market, and asking the federal government to slap price penalties on CSeries airplanes imported into the United States. Boeing alleged that Delta agreed to buy the planes at $19.6 million apiece, well below the $33.2 million Boeing estimates it costs to build one of the aircraft.

Bombardier has rejected the claim, saying the CSeries does not directly compete with the larger 737s and that the price Delta agreed to pay is higher than asserted by Boeing.

The commission ruled Friday that Boeing may have been hurt by the Delta deal.

The trade panel now must determine how Boeing’s business was hurt or affected by Bombardier sales. Part of the case is handled by the U.S. Department of Commerce, which is investigating whether to impose duties on imported CSeries. Boeing wants the price increased by nearly 80 percent. A preliminary decision from the Commerce Department is scheduled for July.

The commission handles cases quickly compared to other legal venues, and a final decision for Boeing’s complaint is scheduled in February. Either side can appeal the outcome to a special federal district court in New York, called the U.S. Court of International Trade.

The complaint is about the big picture, John Demers, a vice president and assistant general counsel at Boeing, told The Daily Herald. As with Boeing’s subsidy dispute with Airbus in the World Trade Organization, “we are trying to establish and elaborate the rules that will govern government support for aerospace.”

Boeing doesn’t “want to be in a position of competing with government subsidies,” Demers said.

The action against Bombardier is “frankly just a continuation” of Boeing’s fight with Airbus, in terms of taking on market-skewing subsidies, he said.

While the WTO legal fight grinds on, the international trade forum has determined that both Airbus and Boeing have received illegal public support, and that Airbus benefited much more from that money.

Airbus continues to lead Boeing in current orders, especially in the biggest slice of the jetliner market: single-aisle airplanes — the workhorses of commercial air travel. Boeing upgraded its 737 with the 737 MAX in 2011, but it still trails Airbus’ A320neo, which launched in 2010, in orders.

Bombardier squeaked into the single-aisle market with its CSeries, which it started taking orders for in 2013. Prior to that, the company had focused on regional jets, which typically hold fewer than 100 passengers. The CSeries has two versions: the CS100 and the slightly larger CS300.

Other companies want to break into the lucrative single-aisle market, as well. The Chinese-built Comac C919 recently had its maiden flight, and Russia’s Irkut is developing its MC-21. Both planes seat more than 150 passengers, the market segment with the most demand. Neither is expected to sell into Western countries, but both have picked up orders in their home countries. China is expected to buy more airplanes in the coming decades than any other country.

With competition only increasing, Boeing decided it could not ignore Bombardier, said Robert Novick, a co-managing partner at WilmerHale, which represents Boeing in the case.

“It’s a big problem,” he said.

Bombardier can use the public bailouts it got to crack into the single-aisle market, and then build a bigger airplane, picking up more orders, he said.

It is similar to how Airbus broke into the jetliner market in the 1970s, he said. Boeing must make it clear to Bombardier “and maybe others around the world that also need a message that this won’t be tolerated,” Novick said.

The complaint has left many industry watchers scratching their heads. Going after Bombardier seems to offer limited reward — price protection limited to the U.S. and for an airplane that is a sliver of Boeing’s order book.

At the same time, the move raises plenty of risks, said Richard Aboulafia, vice president at the Teal Group, a consulting firm based in Northern Virginia. The dispute could cost Boeing billions of dollars worth of business from Canada’s military and from Delta Air Lines, the world’s second biggest air carrier.

After Boeing filed the complaint, Canada stopped negotiating to buy 18 F/A-18 Super Hornets from Boeing.

Delta is expected later this year to shop around for about 70 single-aisle airplanes. Boeing’s antidumping complaint could give Airbus an edge in that competition.

To win the trade commission case, Boeing must show that it will be hurt by Bombardier’s deal with Delta for up to 125 CSeries jets. Boeing claims that the low sales price has undermined its ability to sell its smallest 737s — the current 737-700 and its successor, the 737 MAX 7, which is in development.

Scott Hamilton, an aerospace industry expert based on Bainbridge Island, maintains Boeing’s problem is an inferior product, not Canada.

“The 737 MAX 7 is undermining the 737 MAX 7,” he said.

The original design came up short against the CS300, so Boeing increased its size, making it more economical for airlines to fly. However, the airplane is largely seen by industry analysts as a niche product for airports with short runways or at high altitude. Boeing has only a handful of orders for the plane.

Bombardier has not picked up any more orders since winning the Delta competition in 2016.

Russia and China have given far more direct government support to their fledgling airplane makers. Neither Novick nor Demers ruled out the possibility of legal action in those instances in the future.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com. Twitter: @dcatchpole.

Talk to us

More in Herald Business Journal

Supporters march Wednesday afternoon across from Providence Medical Center in Everett on May 5, 2021. (Kevin Clark / The Herald)
Everett nurses threaten to strike as contract talks stall

Union leaders say Providence’s latest offer includes low wages and cuts to benefits and paid leave.

Mukilteo’s Diamond Knot Brewery & Alehouse before the state made them remove the six tables for outside dining because the sidewalk is on park property. (Diamond Knot)
State: No more drinking beer on the sidewalk at Diamond Knot

The Mukilteo alehouse had to remove six picnic tables that were on park property, which abuts the building.

Exterior of the new Quil Ceda Creek Casino on Thursday, Jan. 21, 2020 in Marysville, Wa. (Olivia Vanni / The Herald)
Gambling Commission OKs pacts with tribes for sports betting

Agreements with the Tulalips, Stillaguamish and 13 other tribes await approval by the governor and the feds.

Snohomish roofing company fined $1.2M for safety violations

State inspectors noted a dozen “willful serious violations.” Allways Roofing says it will appeal.

Pho
You voted: The best pho in Snohomish County

Even during a pandemic, people still have their favorites

Bothell man sentenced for illegally trading Amazon stock

He got confidential information from his wife, who was an Amazon finance employee at the time.

A Boeing 737 Max taxis after landing during a test flight in Seattle on Sept. 30, 2020. MUST CREDIT: Bloomberg photo by Chona Kasinger.
United Airlines in talks to buy at least 100 Boeing Max jets

To attract orders for the plane, Boeing has been offering some customers steep discounts.

Couple sitting in summer cafe outdoor scene. Restaurant outside with table under umbrella vector illustration. Young man and woman eating and drinking, waiter coming with drinks.
You voted: The best patio in Snohomish County

During the pandemic, outdoor seating has become quite popular.

Paul Dolan
Everett’s Aviation Technical Services welcomes a new CEO

The airplane repair company president will step into his role at a critical moment for the aerospace industry.

Boeing workers walk outside of Boeing's Everett assembly plant on Tuesday, April 21, 2020 in Everett, Wa. (Olivia Vanni / The Herald)
Boeing jet sales surge as pandemic retreats in U.S., Europe

Deliveries remain an issue due to problems in factories and increased scrutiny from U.S. regulators.

Two vector oysters in shells isolated on a white background
You voted: The best oysters in Snohomish County

Even during a pandemic, people still have their favorites.

FILE - This undated illustration provided by Blue Origin shows the capsule that the company aims to take tourists into space. Jeff Bezos' rocket company is already calling its future clients "astronauts." One seat is up for grabs on the New Shepard rocket's debut passenger flight scheduled for July 2021; an online auction is underway. (Blue Origin via AP)
Bezos plans to go to space aboard Blue Origin flight in July

He, his brother, and the winner of an auction, will be aboard the New Shepard spacecraft on July 20.