June 12, 2017, (c) Leeham Co.: Boeing won round one Friday in its price-dumping complaint against Bombardier over its sale of the CSeries to Delta Air Lines.
The US International Trade Commission (ITC) voted 5-0 to continue the investigation. It now goes to the US Department of Commerce to determine whether tariffs should be imposed on the deal, and how much. Delta Air Lines would have to pay the tariffs.
Boeing won this round but the big winner is likely to be Airbus.
Airbus isn’t even a party to the case. But the timing couldn’t work more in its favor than if it had planned it.
Delta is understood ready to launch a competition in August or September for its first re-engined Airbus NEO or Boeing MAX families. It has 123 A319s and A320s inherited from the acquisition of Northwest Airlines that are aging and need to be replaced.
There are 74 737-800s dating to 1998, so these will be approaching replacement age soon.
According to market intelligence, Delta will seek proposals for 75 firm orders and 75 options for the NEO or MAX.
Boeing’s April 27 complaint over the Delta deal immediately prompted speculation that Boeing would place it at a disadvantage when the bake-off of the NEO and MAX begins.
Now, a decision on the tariffs is believed to be expected in October, smack in the middle of this bake-off.
Why would Boeing risk losing, if not essentially forfeiting this big order from Delta?
A couple of media reported that for Boeing, this is about Airbus and “never again.” By that, Boeing means it won’t ignore a potential subsidized competitor to the point when it threatens Boeing’s commercial existences.
I have a hard time with this line of thinking because Boeing ignores the far greater threat of China and Russia, but I’ve already written about this. However, Bombardier is the proverbial 98 lb weakling, so Boeing is going after BBD because it can without repercussion—or can it?
Canada already threatened to kill a deal for 18 F-18 fighters. But why would Boeing risk a potential deal for 737 MAXes, including asking Delta to be a launch customer for the MAX 10, in the anticipated bake-off between Airbus and Delta for NEOs or MAXes beginning this fall?
The answer to this question came from one of the people I encountered during my recent 10-day trip that included the annual meeting of the International Air Transport Assn. This person has a vested interest in the outcome (I won’t say why), but is not connected to Boeing or Bombardier in this matter.
His theory is simple: Boeing wants to kill the CSeries, period, and this is the best way to do it.
If Boeing prevails and thereby effectively closes the US market to CSeries, which has the largest potential globally, the business case overall suffers, maybe to the point of tanking the program.
If BBD loses and Delta has to pay the tariff, the theorist continues, Delta might cancel the order—and this could kill the CSeries program.
It’s an interesting theory, but there are obvious holes in it.
Finally, one more theory advanced is that Boeing is using Bombardier to send a message to Russia and China.
Interesting, but I doubt either will be intimidated by what the US does in this case.
Thus, the risk of losing the F-18 or Delta orders is seen by Boeing as pocket change in the long-term, global scheme of things, the theory goes.
What’s the outcome likely to be?
Even though we skeptical journalists that I met during my 10-day trip didn’t think Boeing had a case with the arguments advanced, we all agreed Bombardier is a subsidized company, irrespective of whether the bail-out money is in the form or equity, debt or a gift or any other form. Without it, BBD was headed for bankruptcy. It was just that Boeing’s specific arguments don’t hold water, we believed
That said, the general view was that Trump’s Administration would side with Boeing, which has done a very masterful job of foreplay with the narcissistic egomaniac. And sure enough, it did.
With that, the bet is that Airbus will be the winner in the Delta competition this fall.