Aug. 8, 2017, © Leeham Co.: Delta Air Lines asked the US Department of Commerce to redefine the scope of the Boeing complaint of Bombardier price dumping in its CS100 order with the carrier, filings at DOC show.
Delta asked the DOC to redefine the aircraft definition from 100-150 seat to 125-150 seats, arguing that Boeing doesn’t make in airplane in the 100-125 seat size and therefore isn’t harmed by competition in the sale of the 110-seat CS100 that Delta ordered.
“This revision would properly exclude aircraft with a 100- to 110-seat capacity, which Boeing does not produce, while permitting Boeing to seek the protection of the trade laws as to those products against which Boeing actually competes (to the extent such aircraft are produced in Canada and have been sold for importation to the United States),” Delta writes in its June 19 filing.
“The Department should adopt this exclusion to properly focus the investigation as to those products against which the domestic industry actually competes,” Delta writes.
Redefining the scope to 125-150 seats would, of course, include the CS300 vs the 737-700/7 MAX. Delta has options to purchase the CS300.
The final day of filings was July 31.
The filings with the DOC by both parties largely repeat what had been filed with the US International Trade Commission earlier, on which LNC reported extensively.
Boeing, in the ITC case, calculated the unadjusted sales price to Delta was $23.3m and $19.6m after adjustments. LNC at the time did not report how Boeing arrived at these figures. Delta responded at ITC that the figures were “millions” low.
In the DOC filing exhibits, Boeing included selected pages from Delta’s own financial filings and airplpane purchase commitments.
In the quarterly filing immediately before the CSeries contract, Delta reported airplane purchase commitments of $13.08bn. This covered 18 Boeing 787-8s, 64 737-900ERs, 44 Airbus A321ceos, five A330-300s, 25 A330-900s, 23 A350-900s and 19 Embraer E-190s.
Boeing, of course, would know the prices for its airplanes. It also knew the price for the E-190s, as these used aircraft were purchased from Boeing, which had taken them in on trade from its 737 MAX deal with Air Canada.
Boeing could not know for certain the prices of the Airbus aircraft, but since it competed for the orders, it would have a reasonably good idea.
The next Delta financial document included the CSeries order for 75 CS100s. The airplane purchase commitments now were $15.98bn. Between the previous quarter and this quarter, Delta took delivery of four 737-900ERs and three A330-300s. Three of the 19 E-190s were sold by Delta, which decided not to integrate them into the fleet after placing the CS100 order. Delta honored its purchase agreement for these aircraft from Boeing, however, and resold the airplanes on the open market.
Delta also placed an order for 37 more A321ceos.
Using this data as a basis for starting its calculations, it is reasonable to conclude this is how Boeing came up with $23.3m per airplane. The actual methodology is redacted from the filings.
Boeing then hypothesized contract provisions that provides ancillary value. These provisions are typical of new aircraft purchases of a new fleet type. These include, among other things, fleet integration credits, flight simulators, training, maintenance guarantees, residual value guarantees, parts provisioning and more.
Boeing’s basis for these estimates and contract provisions would be its own sales contracts history, but it could not be certain what was in the Bombardier-Delta contract. The filing redacts the line-item Boeing estimate of each ancillary value but the aggregate, $3,766,667, is shown.
“Because these ancillary items are integral to the 2016 Delta sale, and represent costs to Bombardier and value obtained by Delta, they should be deducted from the unadjust CS100 per unit price of $23,333,333…. Deducting $3,766,667 from $23,333,333 results in an adjusted per unit price of $19,566,666,” Boeing writes.