British PM seeks Trump help in Boeing-Bombardier complaint

Sept. 12, 2017, © Leeham Co.: Montreal: Bombardier is holding a media day today and an investors day Thursday, focusing on its commercial airplane division.

Theresa May

Today The Times of London revealed that British Prime Minister Theresa May called President Donald Trump asking him to intervene in the trade complaint by Boeing over the Bombardier C Series.

The story is largely behind a paywall, but other outlets picked up the story.

May is concerned because Bombardier makes the C Series wings in Belfast, Northern Ireland, which is part of the United Kingdom.

A preliminary decision on the complaint is due from the US Department of Commerce Sept. 25. LNC and most others predict a decision in favor of Boeing.

Boeing asked Commerce to impose penalties of more than 79% under each of two provisions concerning anti-dumping, the basis for Boeing’s complaint.

Below production cost

Boeing alleges Bombardier sold the CS100 to Delta Air Lines for an “adjusted” price of $19.6m ($23.3m before credits), a figure Delta called “millions” too low. Boeing, citing an LNC analysis before BBD’s financial restructuring, said the production cost is $33m. The difference is the “dumping” price, according to the Boeing complaint.

There are two key problems with this theory, however.

The first is that the Delta deal didn’t happen until after Bombardier’s financial restructuring, which included billions of dollars of write-offs for the program. LNC estimated this shaved about $5m of its cost basis.

Secondly, any airplanes now certainly cost more to produce than the sales price due to the ramp up in production and the learning curve. Boeing knows this better than anybody else, give the costs associated with its 787 program. The first 787 was delivered in September 2011; Boeing didn’t hit cash positive production until last year.

But Boeing is counting on US government civil servants who don’t understand this basic fact of life. And Boeing will likely be right.

Seeking information

Commerce demanded production costs from Bombardier for the CS100 and CS300 on aircraft that have been and which are about to be delivered to Air Baltic, Swiss and Korean Air. Bombardier originally forecast delivery of about 35 C Series this year, a figure which is suspect due to engine delivery problems from Pratt & Whitney.

The production costs for these aircraft are almost certainly more than the sales price, being early deliveries well within the learning curve.

It’s not likely to matter to Commerce, which in reading its questions and demands to Bombardier is only looking at the raw price and raw costs.

Coming decision

The preliminary decision due Sept. 25 is expected to be adverse to Bombardier and it is expected to set the penalties. It’s unclear at this time if Bombardier or Delta will be the one to pay the penalty, but monies will have to be paid immediately, into an escrow account, while appeals are made.

36 Comments on “British PM seeks Trump help in Boeing-Bombardier complaint

  1. The Boeing – Bombardier complaint is another sour grapes attitude from Boeing. Firstly this is business and the winner takes all. In winning the deal each individual company “sell” their products through good salesmanship and uses every tool they have in hand to win but most of all the product has to meet the client’s requirement and the product is of superior design and performance to their competitor. In this aspect the C Series is far more advance that the B737 which no matter how you look at it is antiquated in design and performance.
    Just because they lost the deal to sell to Delta, they should accept that they did not have the product that suit Delta and therefore they lost which Boeing should accept gracefully and spend their money on designing a newer and better product rather than trying to sabotage the deal that was won fair and square.
    We should not join in the dispute by analyzing and coming up with who is right or wrong.
    On the basis of Bombardier is undercutting Boeing on price as set out by Boeing, even if that is true Bombardier is absorbing the loss not Boeing so what business is that of Boeing to challenge the sale?
    This is not the first time that Boeing has challenge the legality or fairness of a deal. Lets take the USAF tender for the tanker replacement. Airbus won the contract fair and square and because |Boeing lost they brought up a case against Airbus that the tender was unfair etc etc which basically forced the DOD to redraft the tender which suit and guaranty that Boeing will win this time round which surprise, surprise, they won. This is becoming a joke, lets question Boeing had indirect subsidy through the DOD under the smoke screen of R&D in developing any new plane or weapon for the military in the US. That Boeing will argue it is not a subsidy but everyone knows it is.
    In conclusion this whole Boeing -Bombardier saga is just anyone sign of a bad loser who cannot accept the fact that their action is direct contradiction of fair competition in the free world.

    • Well said Captain! 👍 Also, Boeing got taxes free since years!
      Goliath is afraid of David! Who will be the looser in the long run? Guess…

      • Well if Boeing is Goliath and Bombardier is David then Boeing should be afraid then, yes?

        • I think they are more worried about the modern version.
          Boeing is IBM and Bombardier is Steve Jobs/Apple

  2. I am surely not the only one to wonder since months about what is behind Boeing complaint…
    It seems to me that right now Boeing is after some easy money… Okay, maybe, but what next? What’s behind the tree?
    Killing in the eggs other similar deals? I don’t see Boeing chasing Airbus or COMAC on such a common practice for selling new developed A/C…
    Yet I doubt Boeing would have complaint without interest nor good chances to win.
    So, I wonder/speculate: wouldn’t it be in Boeing interest to particularly strike Bombardier and its weakened finances ? And then to take over the remains in the end, while making more room for a NSR in a world without Cseries?
    (Or did I fall into conspiracy theories?)

  3. Who gets the penalty? Could delta and bombardier just agree to bump up the price a little bit? Are bombardier actually capable of delivering all these aircraft anyway? Our old friend Sir Normand has written some interesting stuff on Fliegerfaust.

    • Bombardier are delivering C Series (CS100 & CS300) right on time, and Swiss Air and AirBaltic are very in love with the CSeries quality.

  4. As usual May and her minions don’t have the faintest notion what they are at.

    BBD are not doing anything that BCA aren’t… well, BBD aren’t doing it to the same degree.

    The Westminster Witch would do well to consider what the implications would be of an implied admission of guilt (regardless of how innocent they actually are) if BBD sought a settlement deal.

    • Northern Ireland is an extremely complex and messy situation and is likely to literally blow up at any moment. Even worse, Mrs May is dependent on a small partisan local northern Irish party for a working majority in the house of commons. She has to be seen to be doing something, otherwise we would have heard nothing about this.

      • To true Grubbie, I had forgotten that her party is being propped up by a group of Northern Irish bigots.

  5. Can you imagine what Scott would look like with that same expression?! It might break the internet! 😉

  6. Props to Capt. Gary Lam for his spot on comment!

    Regarding the tortured (or is it sordid?) history of the yet to be delivered first batch of “updated”/”next generation” tankers (kind of hilarious when considering that the baseline 767-200 design was already completed while the 707s for tanker platforms they’re supposed to replace were still rolling off the Boeing assembly lines), I thought it might also be worthwhile to briefly mention the earlier chapter of the payoffs and scandal that led to Boeing’s former CFO, Michael Sears, and the US Air Forces’ number two procurement official, Darleen Druyun, both pleading guilty to one count of corruption, and both serving time in jail, for Boeing’s earliest efforts to beat its competition to win the lucrative tanker contracts.

    Please, Boeing’s hands are hardly clean. They just are incredibly shameless in playing the “don’t do as we do; do as we say” game exceptionally well — and pitch fits like spoiled brats when they get beaten at their own game, and things don’t go their way.

    Of course, having the “gift” of an insecure narcissist unexpectedly available to kill off the competitor’s far more technologically advanced, fuel sipping, modern aircraft is probably something neither Bombardier nor Delta factored into their risk-analysis — but Boeing sure is doing everything possible to make this the “gift that keeps on giving” by keeping the C-series sales prospects threatened for however long it takes for the expected ruling and the minutes later appeal that will be filed to work its way through whatever other clever “dragging & stalling” strategies and tactics Boeing will generously pay its attorneys, lobbyists, and others to come up with that results in the C-Series becoming orphaned and permanently marginalized, or completely killed off altogether.

    All’s fair in Boeing’s version of love and war, as long as they win. I think the history of the tanker program demonstrates that.

    Too bad…because the C-Series sure sounds like a vast improvement over Boeing’s stone-age (in aviation “years”) 737 that most fliers wish they weren’t stuck on for flights longer than 90 mins if they’re in a 30″ pitch row…

    • I like to check Boeings paid semi disguised mouthpiece Lexington to find out what they are really thinking. One of the most recent articles salivates about the vast profits they are going to make over a period of 100 years from the KC 46 programme. Note to the DOD, compete every maintenance and modification programme.
      Oddly there has been no word yet about Bombardier

  7. How do they get to a 79% duty? I think what is most relevant is what did Air Canada pay for the CS300s, and I am pretty sure those were also below cost. Perhaps the GOC Britain should also engage the EU while it is part of that organization that actually has clout. The EU can threaten counterveiling duties against Boeing. Maybe Britain can also cancel the P8 contract with Boeing and switch to the Bombardier based Saab patrol plane.

    • Too late I’m afraid. The UK is already signed up. It’s a shame because the UK has a considerable amount of clout with P8, AH64, Chinnock and endless obese sustainment contracts.
      I’ve always felt that the C series would make an excellent MPA with it’s range and short field performance.

  8. Those great deals United is getting on new 777-300ERs, ( they are only getting 14) will that come back to bite Boeing if Emirates hears about the true cost ?
    LNR was predicting a ‘true’ production rate by 2019 for the classic 777 of 2 per mo. To move metal thats going take serious money on the hood.

    • @dukeofurl:
      “…great deals United is getting on new 777-300ERs, ( they are only getting 14) will that come back to bite Boeing if Emirates hears about the true cost ?”
      1st of all, UA ordered 18 so far, not 14.

      2ndly, 77W has been in production for 13-14yrs. Naturally due to the effect, we can expect per unit 77W production cost has gone down significantly across those yrs… way the production cost for the 1st 77W delivery(To AF) back in Apr2004 being anywhere near the level for the last delivery to UA 2mths ago. Boeing+GE(Actually more so for GE) of course can afford to sell 77W @ far far lower contract price to any customer today than they did when 77W program was launched in 2000.

      Finally, EK ordered 77W in quite a few diff batches(6 batches/contracts I believe) fm 2004 to 2011. EK could hv easily renegotiated 77W pricing with Boeing every time they ordered a new batch. Also, the last order by EK was placed 5-6yrs ago for 50 frames…..obviously buying in bulk. For that order, I wouldn’t be surprised if Boeing already gave EK huge discount @ a level near what UA is getting fm Boeing.

  9. And if selling below the cost of CS100 would harm other competitors like Embraer, Mitsubishi and Sukhoi? And what will happen when the Chinese Comac starts selling to American companies accepting a great loss, in exchange for the prestige of participating in the most important market in the world? What is the competitiveness that matters: the corporate competence or the financial strength of governments?

    The market between 100-130 passengers is a contact zone that interests many players, although it is not critical for Boeing and Airbus.

    Whether or not we will have to agree on rules on government aid to aircraft manufacturers.

    • @Caerthal:
      I think U missed the only fundamental legal foundation re this BBD vs Boeing trade dispute:
      A U.S. manufacturer hurt by a foreign manufacturer WITHIN the U.S. domestic mkt due to that foreign manufacturer dumping product @ below-cost pricing.

      The U.S. gov’t hv absolutely zero obligation to intervene, per U.S. law, if any BBD action is hurting any other foreign manufacturers such as EMB, Mitsu, Sukhoi, Comac, etc. also selling WITHIN the U.S. domestic mkt. The U.S. anti-dumping law only protect U.S. domestic manufacturers(e.g. Boeing) selling WITHIN U.S. domestic mkt(e.g. DL buy in that mkt).

      Outside the U.S., the U.S. anti-dumping law has no legal jurisdiction anyway and the U.S. gov’t couldn’t use that law against BBD even if BBD start giving the CSeries away for free in all foreign mkts and such BBD action cause EMB, Mitsu, Sukhoi, Comac, Airbus and even Boeing to go out of biz. The only recourse U.S. gov’t has is to try to prove BBD receives gov’t subsidies illegal per WTO rules but any decision+penalty is decided by WTO, not the U.S. gov’t anyway.

  10. Does anyone know how they separate the production and capital costs? This would seem to me to be an impossible task.

  11. At the end, Delta may regret having driven such bargain for itself… a few measly millions saved as BB is/was $$-wise chocking.

    Not that Delta can’t afford the fine, if any — i doubt they’ll be targeted.
    But really by opening BB to such local attacks hence weakening future leverage against Boeing.

    All politics are local. We all have a tendency to want to build business ultimately protected by defacto monopolies (ours of course :-)) wrapped in ‘free market’ discourse…The latter is the tribute to be paid when externally positioning the wares in today’s cutlure.
    Reality when you hear internal enterprise conversations is quite different. But not sure we found a more practical org. system today (read: capitalist). It’s the best we have — in whatever variant that suits.

    If shame killed, we’d be all in cemeteries. You fight and move on.

  12. @FLX

    I do not think I’ve gotten away from it. Many argue that Boeing’s action is fundamentally unfair because of the size gap between companies. My point is precisely to question the fairness of the subsidies granted by Canada and the United Kingdom to create a false competitiveness.

    I am also perfectly informed that the dispute has nothing to do with other producers or markets other than the US. Ideally, such disputes should be more effectively regulated by the WTO and OECD, which is not the case in practice. But I understand that the data gathered in this discussion will serve for other actions within international bodies and a powerful alert for China.

    • @Caerthal

      Quite a few people seem to fail to grasp what is really at issue here, which is that Boeing’s blatant hypocrisy is mindboggling.

      The top welfare recipient of them all is aerospace giant Boeing, which has operations spread all across the country building aircraft and working on numerous Department of Defense projects. The amount of work Boeing does for the federal government no doubt plays a part in the amount of subsidies the company has been able to secure, but Boeing has also played hardball with local jurisdictions to get enormous tax breaks. With more than $13 billion coming in from 148 handouts, Boeing has thoroughly entrenched itself in the interest of the government and taxpayers.

      Despite the immense amount of money the company receives, it has still gone on to hold cities hostage in tax negotiations, threatening to remove jobs and open up shop in friendlier climates. In 2013, Boeing secured the highest ever tax break at the state level when it cornered the Washington legislature into ceding to its demands, lest it move its production plants to another part of the country. The legislature granted Boeing its wish, but Boeing went on to announce drastic layoffs anyway, angering many locals.

      Boeing has become the king of corporate handouts, and other corporations have a long way to go to catch up.

    • test flights arent such a big deal Claude. Once there was a regular Houston
      Stavanger Norway flight with a 737, it was a limited capacity version too.

      • I guess you never heard about the very steep approche needed to land and take off from London City Airport. The 737 wouldn’t be able to do it. I wouldn’t be surprise Swiss Air will schedule direct flights from there to N.Y City.
        The two biggest business center in the world will save time travel and money.
        Trump he is a business man, he should understand.

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