Sept. 14, 2017, © Leeham Co., Montréal: Bombardier officials conceded Tuesday that they are likely to lose the price dumping complaint filed by Boeing with the US Department of Commerce.
This is the phase in which DOC determines if tariffs (penalties) should be imposed because Bombardier sold its CS100 to Delta Air Lines at a price so low it constitutes dumping under US law. Boeing is asking the department to impose a tariff of 79%, the difference between the sales price estimated by Boeing (which Bombardier and Delta dispute) and the production cost. Boeing cited LNC’s cost estimate, which was made before BBD wrote off several billion dollars of the program and cut costs through a financial restructuring.
Boeing ignored the well-known fact (which itself experiences) that production costs for early orders exceed sales price. DOC seems unlikely to make this distinction, based on filings reviewed by LNC.
A preliminary decision is expected Sept. 25.
BBD is already looking ahead to the next phase, when DOC will take up the “injury” portion of the two-part investigation.
This portion assesses the alleged injury Boeing suffered, or may suffer, due to the price dumping. This phase will extend into next year. Boeing is also seeking a 79% tariff against Bombardier for this.
Fred Cromer, president of Bombardier’s commercial unit, said Tuesday that Boeing’s complaint is without merit—hardly a surprising position—but that by pursuing the complaint, Boeing threatens US jobs. Fifty percent of the C Series value comes from US suppliers supporting 20,000 jobs, he said. Over the life of the program, this means $30bn to the US economy.
All Boeing is doing, Cromer said, is attacking competition and innovation.
“Its complaint is focused on a category of planes (the CS100) it doesn’t produce,” he said. “There were campaigns they weren’t invited to participate in because they don’t produce airplanes on the sector.”
Cromer said Bombardier is looking beyond Sept. 35 “where you are actually proving damages. I believe over the course of the action, we will come out on top and participate in the US market.”
Separately, it was revealed Tuesday that Bombardier now hopes to delivery about 30 C Series this year rather than the 35-36 that’s been guided.
The company needs to hurry up. It needs to deliver 19 aircraft in the next 15 weeks to hit the 30 mark. Given continued supply chain issues, some observers believe BBD will fall short of even 30.
“that sales price for early orders exceed production costs. ”
Should be the other way round, right?
Yes, fixed. Thank you.
The best solution is to lease Cs100 to Delta ia an entity based in Canada and the problem will be solved … that is how Russian airlines are operating using Irish lease companies
I suspect that the leasing scheme you suggested would not work as long as Delta remained a US based company. Note the following excerpt from the US Code, according to which any anti-dumping duties imposed would also apply to ” any leasing arrangement regarding the merchandise that is equivalent to the sale of the merchandise”.
19 U.S. Code § 1673 – Imposition of antidumping duties
(1) the administering authority determines that a class or kind of foreign merchandise is being, or is likely to be, sold in the United States at less than its fair value, and
(2) the Commission determines that—
(A) an industry in the United States—
(i) is materially injured, or
(ii) is threatened with material injury, or
(B) the establishment of an industry in the United States is materially retarded,
by reason of imports of that merchandise or by reason of sales (or the likelihood of sales) of that merchandise for importation,
then there shall be imposed upon such merchandise an antidumping duty, in addition to any other duty imposed, in an amount equal to the amount by which the normal value exceeds the export price (or the constructed export price) for the merchandise. For purposes of this section and section 1673d(b)(1) of this title, a reference to the sale of foreign merchandise includes the entering into of any leasing arrangement regarding the merchandise that is equivalent to the sale of the merchandise.
They can form it as an operational leasing , there must not be a transfer of ownership. Two parties are free to choose any rental price as long as there is no transfer of ownership …
Erm, boeing by going down this route are leaving themselves wide open to attack by any and sundry for any future new a/c model they build! It beggars belief they would do this after their 777 (fill the lines by any means) and 787 mass dumping fiasco.
How will this affect the 777x? Im sure costs will have to be written off on the first X amount of aircraft and again for the 737 max 10 etc etc, im sure someone will challenge the prices sold against production costs, its sheer madness that boeing themselves invented.
There is the sale of the CSeries in the United States and the sale of the CSeries in the rest of the world. There are therefore threats, and threats, risks and risks for Bombardier.
And one thing is missing in this conflict: what will the American airlines do when they learn about long-term CSeries performance data in real life? Delta will be judged as a visionary company and will derive a long-term strategic advantage by immediately focusing on increasing capacity for the regional and inter-regional market.
This is a game of poker that is being played. This match has the advantage of showing strategic positions defended by Boeing, positions particularly useful for Bombardier, Airbus, Comac, Irkut when it comes time to prosecute Boeing before the WTO for anti-competitive practices and nuisances to free trade. In a time to come, therefore, Boeing is exposed to reprisals of any kind on the part of several states. Europe alone could apply for countervailing duties for every Boeing sold to airlines in the face of Airbus damages before the DOC. Moreover, through this public revelation of these strategic positions, Boeing provides weapons and arguments to American airlines which for the time being have not yet entered this fray. Their current silence speaks volumes about their degree of reflection.
What is particularly clear with this approach of Boeing before the DOC is the construction of a monopolistic space for the large-scale sale of their future NSA. Boeing will seek to obtain a significant gain on each sold plane, even if it is likely to be identical to the Cseries.
Let’s move on to this next step, and we want Bombardier to succeed, find a more stable financial balance, lower the cost of its aircraft, and offer the CSeries superior range (CS500, CS700 , etc.).
It would be a shame if a bunch of lawyers, lobbyist & communication experts defeat innovation. This can’t be ethical on a larger scale. Where’s spirit, entrepreneurship & technical excellence? Sold? Are this the good guys? Congress should look into this.
I think we can pretty well can ethics at this scale. There are none.
Note that Delta played Boeing like a fiddle to get the best ricin from Airbus on the A350 and A330NEO.
That may play a part in this.
No I am sorry, ethics is what the Corporations tell the working person he is supposed to have. Big business and e politicians, that’s not even lip service anymore.
Do as I say, not as I do, you pesky scummy welfare types.
You made the following statement in your post.
“Boeing ignored the well-known fact (which itself experiences) that production costs for early orders exceed sales price. DOC seems unlikely to make this distinction, based on filings reviewed by LNC.”
This claim, which is often made here and elsewhere, is not true, as should be apparent to anyone who skimmed through Boeing’s complaint or the ITC hearing transcripts.
Boeing’s complaint applied a start up adjustment to the production costs estimated by Boeing, based on Boeing’s experience on the shape of the cost curve for a new aircraft series. Boeing’s estimate of recurring costs were based on a production run of 2,085 aircraft, a loss of 32 million per aircraft for the first 50 aircraft, breakeven at 1Q 2020, and assumed a 50% discount off list price for the first 206 aircraft. You may agree or disagree with the details of Boeing’s model, but is demonstrably not true to say, as you did, that Boeing ignored that production costs for early orders exceed sales price, based on documents to which you have posted links. The following quote is from page 124 of Boeing’s complaint. You posted a link to this document on 4-27-17.
“In essence, for purposes of this petition, notwithstanding the limited grounds on which the Department will grant a start-up adjustment under 19 C.F .R. § 351.407, Boeing has applied a start-up adjustment to Bombardier’s POI production costs.(379) In its normal books and records, Bombardier, following International Financial Reporting Standards (“IFRS”), does not allocate learning curve costs over the life of the program. Thus, Boeing’s calculation of Bombardier’s recurring costs is very conservative. To estimate Bombardier’s recurring costs, Boeing constructed a Bombardier recurring cost curve model using the following known information:
• Bombardier’s published delivery schedule;
• The published break-even point of the first quarter of 2020;(380)
• Bombardier’s expected loss of USD 32 million per unit over the first 50
• Published list prices; and
• Boeing’s own experience on the shape of the cost curve for a new aircraft series.
In addition, Boeing assumed the following:
• A total production run of 2,085 units for the C Series program; and
• An average list price discount for the first 206 aircraft of 50%.
Boeing’s estimates of Bombardier’s production costs are provided at Exhibit 42, Tab 3. A detailed explanation of the model and how the public data were incorporated into the model to derive Bombardier’s production cost for the C Series is provided at Exhibit 152.”
Here is the link that Scott posted to Boeing’s complaint on 4-27-17, which I quoted from in a post above.
Here is another quote from Boeing’s complaint which can be found on page 123, immediately before the quote in my previous post.
“Both the Air Canada and the Delta orders are scheduled for deliveries early in the program’s life cycle. Because of the “learning curve” effect, the actual variable manufacturing costs in those years will greatly exceed the average variable manufacturing costs over time. Therefore, as a conservative measure for its calculation, Boeing used average variable manufacturing costs, expressed in constant U.S. dollars, over the life of the C Series program. These costs have been spread over the projected number of deliveries over a twenty-year period, which is a reasonable estimate for the life of an LCA program.”
How does the fake fact that Boeing ignores that manufacturing costs exceed production costs early in an aircraft program get started and propagated when Boeing’s complaint includes the above language? I suppose it can help a lot if most of the people doing the propagating have never taken the time out from arguing about the case to actually read the original complaint.
Boeing does not have a competing product for the Delta sale. Full stop.
They are predicting future harm, (not even potential harm…but actual harm), from not just this sale, (which again, in which they were not even invited to participate), but from potential future products, which Boeing has not even proven that BBD is researching, much less planning for in any meaningful way.
Boeing is basing their claim on harm to their company…which doesn’t now, and they can’t prove ever will, exist. While the product line they say is so very vulnerable to the CSeries is making record sales, they claim that BBD, whose production rate won’t be any more than 1/5 of the 737 for years to come, will kill their product, and put the entire company at risk.
How can anybody take that hyperbolic garbage with a straight face?
Since the game is totally rigged towards American registered companies, and it’s being played in America, there isn’t a chance in hell that there will be the slightest bit of even handedness or fair play.
No matter how illogical, there wasn’t a single observer who didn’t think Boeing would win. The US has a long and stories history handing out, ‘shoot from the hip’, countervailing penalties against Canadian products and companies, only to have them overturned…and then the US drags its feet on returning their ill gotten gains.
The department of Commerce in the US is a cesspool, and everything it touches, stinks.
AP Robert: Thank you for the background and detailed imoformaation .
Its beyond me but how would a model play out if Boeing used the 787 as a model for the situation for a new aircraft?
Strange to see B complaining , when you see their 787 DPC cumulating @some 30b$ which means that they have sold their 500 initial a/c at a price significantly below their production costs…does this also constitutes dumping under US law?
@T4DCY nope even is Boeing give away their planes in not dumping under us law since it a U.S. company. That why I’ve been saying this law make no sense whatsoever. Talk about free market with no bias !
I agree with you that DOC is probably not going to see the distinction you allude to in the LNC analysis, but do you think this is simply based on ignorance/inexperience or do you think Boeing or another domestic entity has been helping put pressure on DOC and other involved agencies?
For the record, while I think the case was a bit of a stretch for Boeing, I think BBD should be able to negotiate a lower tariff. The penalty seems too harsh. Do you feel arbitration or appeal will likely change the initial outcome from the expected ruling on September 25th? Thank you in advance.
@MOSFET The way the US laws on dumping are written, this is an easy case for Boeing to win. That said, the staff at US ITC and DOC are in way over their heads. Believe it or not, there is an anti-dumping case going on about Chinese dumping of clothes hangers. Hangers–one piece of wire. Airplanes–a million parts. And this staff is supposed to know what it’s doing???
As for your question, I’ll be addressing this on Monday’s Pontifications.
I think Boeing isn’t too concerned being destroyed by the CS100.
It’s more about preventing BBD getting a foodhold in the US and becoming strong enough to launch the inevitable derivative CS500, that would throw a stone in the pond.
Maybe Scott can open up this one: