May 1, 2017, © Leeham Co.: The Boeing Co. filed a complaint with the US Commerce Department and the International Trade Commission charging the Bombardier “dumping” the CSeries in the US to the detriment of Boeing and its 737.
Brazil, on behalf of Embraer, another competitor to Bombardier and the CSeries, previously filed a complaint with the World Trade Organization over similar charges that the Canadian and Quebec governments improperly subsidized BBD when they bailed out Bombardier for the CSeries.
The federal and provincial governments provided about US$1.5bn in investments in a new company that segregated the CSeries from Bombardier. A quasi-government pension fund took an investment in BBD’s rail division, also for more than US$1bn.
Neither move is a surprise.
At the time, the Canadian investments in Bombardier and the CSeries pretty much transformed the CSeries into a government program, managed by BBD.
So far, no US complaint has been filed with the WTO. Although Boeing can urge the US government to file a complaint, it must be the government that does so—just as it was Brazil, not Embraer, to file a complaint.
“We are going through Commerce and the ITC (International Trade Commission) because this is clear case of illegal dumping. The antidumping and countervailing duty statutes are designed to address precisely this situation,” a Boeing spokesman in Washington (DC) told LNC in an email. “The WTO continues to play a key role in adjudicating international trade disputes and has an excellent record in that regard. We’ve chosen the path we’re on because we are making a dumping allegation with respect to US sales and Commerce and the ITC are the right channels for dumping cases.”
In the filing, Boeing claims it’s already been harmed by having to drop its price to sell 737-700s to United Airlines and having lost then Delta deal. One of the ramifications, Boeing claims, is the depressed or absence of progress payments needed to fund research and development for new airplanes and provide a good return to shareholders.
Boeing’s lawyers need to check with CEO Dennis Muilenburg, CFO Greg Smith and Investor Relations on this one.
The two executives and IR persist in telling Wall Street analysts and investors the 737 and 787 programs are throwing off so much cash that production rate declines of the 777 and 747-8, with their resulting loss of cash flow, don’t matter. The company can continue to spend $7bn a year in stock buybacks and upped dividends.
As for R&D spending, the CEO, CFO and IR tell the analysts and investors that any new airplane development for the 737-10 MAX and 7M7 middle of the market airplane can be done within the current levels as spending winds down on the 787, MAX and 777X programs.
These assurances from Muilenburg, the CEO, Smith, the CFO, and IR certainly make it sound like Boeing isn’t hurting for cash for product development and shareholder value.
UBS last week issued a research note with detailed analysis of the performance of the Pratt & Whitney GTF and the CFM LEAP 1A engines.
The analysis doesn’t recap the well-known problems with the GTF, but focuses on in-service hours, etc. The report also is about the Airbus A320neo; there are no reported issues with the Bombardier CSeries GTF.
“Our analysis indicates that average LEAP utilization is running at ~9 hours/day as compared to GTF utilization at ~7 hours/day,” writes UBS. “During the past week (week ending 4/20), we estimate daily average GTF utilization increased 4% sequentially while average LEAP utilization declined 3%. We estimate the A320neo GTF fleet experienced 1.4 out of service days on average over the last week (no out of service days for C Series) as compared to 0.6 out of service days for LEAP.
“Across the largest operators, average GTF utilization varies widely with China Southern (3-4 hours per day on average including three aircraft mostly out of service) and Spirit (5 hours per day including two aircraft out of service) at low end. IndiGo continues to utilize its GTF neo fleet at highest rate (~10 hrs/day). For LEAP, all of the largest operators are flying 8-10 hours per day,” UBS writes.
“Our analysis indicates that average LEAP utilization has improved significantly over the last couple of months to 9-10 hours/day as compared to GTF utilization that has held relatively flat at ~7 hours/day.”