May 30, 2017, © Leeham Co.: “Boeing’s petition…is unprecedented in its overreach. There have been no…imports and no domestic shipments during the period of investigation. There are no lost sales or revenues. Boeing does not even make a product that competes with the aircraft Bombardier offered in the United and Delta competitions….”
So begins Bombardier’s closing brief in the Boeing complaint before the US International Trade Commission (ITC).
In the tit-for-tat claims, counter-claims and responses in the price dumping case in which Boeing charges Bombardier sold the CS100 to Delta Air Lines for $19.6m, Bombardier and Delta didn’t mince words in refuting the US plane maker.
Bombardier notes that Boeing “denied the viability” of the 110-seat market by abandoning the 737-600 and the 717. There were no sales of the former after 2006, though Boeing didn’t officially drop the airplane until 2012. Boeing discontinued the 717 in 2006.
Bombardier wrote that not only does Boeing not compete in the 100-125 seat sector, it “further [distanced] itself from the target segment of the CSeries” by up gauging the 7 MAX, making it larger than the CS300. Bombardier quotes a Boeing official as saying the revised MAX 7 and the new MAX 8 “bracket our competition,” referring to the Airbus A320.
Bombardier quotes former CEO of Boeing Commercial Airplanes Ray Conner when he said the reason Boeing dropped its price so dramatically on the 737-700s sold to United was to block Bombardier’s sale and check the validation CSeries would have received from a UAL order.
Boeing’s action in the Delta case “appears to reflect a similar strategy,” Bombardier writes.
Boeing didn’t lose a “single” sale, Delta said in its closing brief.
“Because of Boeing’s enviable order backlog, they told Delta they had no significant production slot availability until 2020 for any aircraft in the 737 family.
“Boeing would have the Commission find a reasonable indication of threat of material injury by reason of a sale Boeing was never in the position to make. The ultimate irony is that Boeing actually did make a sale to Delta as part of the acquisition campaign that resulted in the CS100 order.”
“Simply put, the CS100 was the right size (109 seats) and its ‘clean sheet’ design created unmatched efficiencies and compelling operating costs.”
Boeing offered no viable alternative, Delta writes, noting that Boeing instead “attempted solely to block Bombardier” with used E-190s and the Boeing 717. The quantity of the former was insufficient, and Delta couldn’t buy enough on the open market at a price it needed. There were neither the quantity nor the delivery timeline Delta needed for the latter.
Bombardier could offer deliveries beginning in 2018, with a clean-sheet design.
Delta and Bombardier provided the net contract price to the ITC for review, but didn’t disclose it in the public filings. However, Bombardier wrote that the reported pricing was off by millions of dollars.
Additionally, Delta wrote that price is but a small portion of aircraft operating costs.
“While Boeing argues that ‘acquisition price’ is paramount, the reality is that even the most favorable pricing will have challenges overcoming non-acquisition costs to create a competitive seat or trip cost for the aircraft,” Delta writes. “The price, of course, is a substantial up-front cost, but it will be quickly eclipsed by fuel costs, maintenance and staffing costs. It is total operating costs that ultimately drive the profitability of an aircraft for an airline.”
Boeing contended in its May 18 testimony before the ITC that Bombardier’s price dumping would deny Boeing the cash needed for research and development for the MAX 7 and for new airplanes. Bombardier waved this away.
Boeing is projected to have $26bn in free cash flow from 2017-2020 from the 737 line alone, Bombardier writes, from which Boeing could develop a new airplane.
Bombardier also attacked subsidies Boeing received. In the European Union case against the US and Boeing, the World Trade Organization determined Boeing received more than $3bn in illegal subsidies.
“In fact, the figure is higher, as this does not take into account the massive $2.2bn export tax credit subsidy that the US had eliminated before the WTO ruling, nor the recent WTO panel ruling that certain Washington state tax measures involved prohibited export subsidies to Boeing,” Bombardier writes.
Bombardier and Delta refuted Boeing’s testimony that there is a distinct 100-150 seat sector in which Bombardier’s alleged pricing practices harm Boeing.
Bombardier wrote that under the ITC rules, the 737 must be viewed as a single product line, not one that is divided into sub-sectors as Boeing claimed in its filing.
This is a legal distinction that Bombardier pursue. Throughout development and marketing of the CSeries, Bombardier—and its competitors—segmented the 100-150 sector from the 150-200 seat one, all falling in the more generic “single aisle” category.
For years, Airbus split these sectors in its Global Market Forecast until doing away with the segmentation a few years ago. Boeing never segmented the two sectors (at least in memory) in its Current Market Outlook.
As Delta and Bombardier point out, Boeing markets the 737 under one family branding and as a complimentary set of airplanes.
Delta pointed out that the 737 MAX has its design origins in the 1958 737-100 and has undergone 58 revisions since. The point: the entire 737 family is inter-changeable and not distinct at a 150-sest line that Boeing claims in its testimony.
Delta noted Boeing testified it had not sold an airplane in the 100-150 seat segment in the US since 2013. Thus, it had zero percent market share. In predicting a 24% market share in the future, Boeing was not shrinking—as claimed—but growing.