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