Boeing complaint to US: Bombardier unfairly subsidized

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.