Is Bombardier a stalking horse in Boeing complaint?

Analysis

May 17, 2017 © Leeham Co.: Is Boeing’s complaint against Bombardier over the Delta

Delta Air Lines CS100.

Air Lines CSeries deal merely a stalking horse for future action against Airbus?

This is the theory of one person LNC spoke with on the sidelines Tuesday at the annual Airfinance Journal Conference in New York.

Testimony in the Bombardier case begins this week.

Boeing’s complaint

Boeing filed the complaint April 27 with the US Department of Commerce and the International Trade Commission. The well-healed, financial aerospace giant alleged that Bombardier sold the CSeries to Delta for less than $20m (a figure BBD denies).

But Boeing’s complaint, which was widely ridiculed among aviation trade press (including this one), may be more of a test case for future action against Airbus than it is about going after Bombardier, says the person at the AFJ conference.

Bombardier threat to Boeing

Bombardier, which avoided bankruptcy only through government bailouts at the heart of the Boeing complaint, had revenues of C$16.3bn last year. Boeing had revenues in 2016 of $96.1bn—roughly six times the size.

Poor Boeing. Teeny, tiny Bombardier and its Delta deal for 75 CSeries makes it impossible for Boeing to develop new airplanes and provide a good return for shareholders. At least that’s what Boeing claims in its complaint.

Breaking new ground

Boeing’s complaint with the US government and the ITC breaks new ground, according to the person at AFJ’s conference. There hasn’t been a similar complaint in the past and the ignorance of the complex issues of launch customer pricing and related issues in the is apparent, he says.

While the World Trade Organization, where Airbus and Boeing traded complaints in cases that continue over 12 years, is used to these and ostensibly is impartial, the ITC and US DOC tends to be biased toward the complaining party, this person says—in this case, Boeing.

Going after Airbus

Boeing officials are frustrated that the WTO case continues to drag on through appeals. The WTO found Airbus and Boeing guilty of receiving illegal subsidies. Boeing and the US government claim the amounts to Airbus are far more egregious than to Boeing. Thus, they want authority to levy penalties in the case, even though it’s unclear whether it will be against Airbus or another industry.

If Boeing prevails with the US and ITC, then a complaint may follow against Airbus, it’s suggested.

It’s an interesting theory. And one worth watching.

30 Comments on “Is Bombardier a stalking horse in Boeing complaint?

  1. It is also an extremely opportunistic move by Boeing given the November election in the US.

    As a side note, was the Delta follow-on order of 30 more A321s at least in part a thumbed nose at Boeing? Of course Delta had to offer Airbus something to (one supposes) get the A350 deferrals without penalty, but that seems like a bigger carrot than needed to manage the deferrals.

    My armchair guess was that DL is signaling that their relationship with Boeing will not go unchanged if they really pursue Delta’s CS100 order claims.

    • Hard telling, but Delta has also expanded orders for 737-900.

      I think Delta is playing both ends against the middle (no problem with that) and unlikely to go to one camp or the other as its working to their advantage monetary wise.

    • The A321ceo and A321neo fits US domestic operations really well. Most Airlines realized this and replaced their 757’s with A321’s (except UAL) as well as 767’s with A330’s (except UAL). Most likely UAL will launch the new Boeing 797 with PWA Engines. (United Aircraft Corp…)

      • UAL and AA are some of the worlds biggest airlines so Airbus should think about them as potential customers, but they are very Boeing loyal. So let Boeing build the MoM for them. Can’t see how the economics (Capex/Opex) of an MoM can beat that of an A322 on inter-US routes?

        There are other fish to fry, like Keesje indicated such as thin up to 4000Nm routes to develop in Asia. If the two door access can be established on an A322 it can also open a number of opportunities for airlines and Airbus in shorter haul medium density routes (<2000Nm).

        Can also see a good market for an A300-like aircraft, high density routes, <4000Nm, good freight capabilities in the Asian region. Basically A330-200 size but on a heavy diet.

        • I wouldn’t say that AA is extremely Boeing loyal; the management group is led by Airbus fan Doug Parker (ex America West/US Airways)

  2. Agree that more is going on here that meets the eye. Are they targeting BBD and/or indirectly P&W, which (PW1100’s) they can’t use on the MAX’es and be the most likely engine for an A322.

    Or is Boeing’s interest in Embraer playing a role, or, or….?

    Think Boeing realized that they need an NSA and 767 replacement but can’t do both at the same time.

    Somewhere they will want some “relieve” from Government to proceed with both projects that will be “in the National interest”?

  3. I guess this shows that even with 4 times more gov injections than BBD (and twice as much as Airbus), Boeing can only compete if, on top of money, also gets the weight of the US legal system to protect its bad decisions. Surely that is good for the world economy. What’s next?
    Why not use the DOD while we’re here, drone strikes on foreign competitors?

    This is nasty any way you look at it. This is Microsoft in the 1990s trying to kill the internet. Thankfully, they didn’t succeed. We’d still all be on tower computers with Internet Explorer 4 and gumstick Nokia phones… And Boeing 737 with new engines. Oh wait, that one, we still have…

  4. Hats of to Delta, will make an effort to use them if they service a route that I need to fly, as is it for JetBlue.

  5. Also considered to be biased in favour of domestics IIRC.

    At the very least Boeing seem to have gone with the way the Trump trade winds seem to be blowing. Might of course also prove a useful pathfinder for the Trump admin in any concerted shift away from WTO.

  6. As there is no Trump thought process the winds shift frequently.

    Fun to watch though.

  7. I see this more as potentially harming Boeing, rather then helping them.

    If they launch an MOM with a price tag of $75 million, would that not invite the EU/Airbus from levelling dumping charges on Boeing itself? More than likely, they would be hard pressed to prove they can make a brand new aircraft profitable with such a price tag.

    The 787 initial orders for the 787 would be a good bit of evidence that Boeing is not necessarily innocent of price dumping in the past.

    • Bombardier can show with the 787 case that price dumping is a normal way to introduce a new aircraft into the market. Also that costumers with higher orders get more discount.

    • Could they conceivably divert the development costs of a new airliner into another 787 accounting hole?

  8. Boeing officials are frustrated that the WTO case continues to drag on through appeals. The WTO found Airbus and Boeing guilty of receiving illegal subsidies. Boeing and the US government claim the amounts to Airbus are far more egregious than to Boeing. Thus, they want authority to levy penalties in the case, even though it’s unclear whether it will be against Airbus or another industry.

    Their talking points about Airbus have usually been based on [edited] and misconceptions. In order to compete properly, Boeing needs to stop telling themselves that they’re squeaky clean; cut back on their stock repurchase plans and executive exesses such as obscene salaries and executive stock options; stop holding US-States hostage in order to extort tax concessions from them; and finally, start creating a coherent long-term product strategy.

    The Boeing of today sounds more like a whiner and comes across as a sore loser. It’s really quite pathetic.

    • [edited] :

      Would “gross distortion of the facts” be ok? 😉

      • For the “legal eagles”. Any regulations on the lease of aircraft from foreign lease companies?

        • @Anton, if you mean a scenario whereby Delta leases CS100s from a non-US company, no–it happens all the time. However, some countries (like Russia) nevertheless impose taxes (tariffs) on non-locally built aircraft as a form of protectionism and these taxes (tariffs) get built into the lease rate.

          • Hello Anton and Scott,

            In 2009, in United States vs. Eurodif, the U.S. Supreme Court ruled 9-0 that U.S. Anti-Dumping Law applied to contracts for uranium enrichment services, as well as to direct sales of enriched uranium (see link below). I’m not a lawyer, but in view of this decision I think I would want to have the counsel of the very best trade lawyers available before I attempted to set up a leasing scheme to circumvent an active anti-dumping investigation. This would not include, for instance, any lawyer or legal firm who had failed to warn me that under U.S law, products cannot be sold in the U.S. at less than they are sold for in their home market, if doing so causes material damage to a U.S. producer. This is a largely separate issue, under U.S. law, from whether the product is or is not being subsidized by the government of the country of origin, or being sold below production cost.

            http://www.scotusblog.com/case-files/cases/united-states-v-eurodif/

          • Thanks Scott,

            Could be a good deal if Delta sells the CS300’s $X and lease it back? But then things could get noisy.

  9. If Boeing is planning to intimidate Airbus with this complaint, the fact that Airbus has a US assembly line will make it extremely difficult to even make a complaint as they can make sure all their foreign content is properly priced while the US content is heavily discounted. So any action against Airbus on A320 family is pretty much a non starter.

    • Is this scaring techniques from Boeing before the Delta narrow body tender?

  10. Once Boeing is finished stifling Bombardier sells to the U.S., Bombardier will be driven to bankruptcy and will sell out to COMAC (currently underway). COMAC will then have more IP and a fleet of airplanes certified for sale to North America and Europe. I hope Boeing prefers dealing with China instead, otherwise, their plan will have unintended consequences!

    • PM
      Yes indeed! That is being reported even as far as New Zealand where I live. Interesting times. Does this mean COMAC sees a bit of difficulty with the current airframe but can pick up an approved set of frames at less then the development cost? Can the Canadian Government
      let that go?

      • Geographically China and Canada are virtually neighbours, go to Vancouver and you know what I mean, but its also very close to Everett.

        Maybe the 4-C’s, Canada-China-CSX00-C919. You never know?

        Coming to think about it, a stretched 200 seat C919 with 35K-Lb PW1100G’s could actually be a nice plane!

  11. Today the Canadian government threated to cancel its talks with Boeing over an 18-20 F-18 interim purchase. Value including maintaining for life about 15 billion.

    Maybe Defence and Commercial Boeing should talk together.

  12. You can’t read minds of bureaucratic executives, shortage mentality and stomp-when-small are among possibilities, as well as just being constipated instead of producing more better faster.

  13. Imagine if Airbus files the same sort of claim with the EU over 787. Every single one so far was sold at a loss, and the massive loss is clear as day on the Boeing balance sheet. It caused huge reductions in profit for Airbus and its competing A330 as well as wiping out the A340. Imagine what that compensation bill would look like. How many 787s would Boeing have sold if they priced at $87m more per unit? I am thinking about 100-300 instead of 800+

  14. I do wonder if the Cseries might make a good mpa. This would have several advantages for the Canadians rather than buying the slightly underwhelming and expensive P8. It would almost certainly gain some export orders if it was any good and would enable the Canadian government to fling a bit of cash into the C series.

    • A CSeries MPA would be interesting.

      How about the Saab Swordfish MPA based on the Global 6000 airframe?

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