Assessing the impact of the Bombardier decision

Sept. 27, 2017, © Leeham Co.: The aviation world is still in shock over the size of the tariffs the US Department of Commerce plans to impose on Bombardier C Series deliveries to Delta Air Lines.

The DOC yesterday preliminarily decided to impose a 220% tariff on each CS100 delivered to Delta.

Delta Air Lines Bombardier CS100.

Deliveries are scheduled to begin in April.

And this is only half the case. This week’s decision is about launch aide and the equity investments BBD received for the CSeries.

Next week, it will be a determination whether Boeing and the US airline industry faces the threat of injury. Observers believe DOC will conclude there is.

Shocking tariff

Boeing asked for tariffs of 79% for the subsidies and injury complaints. It also asked for a 147% penalty to punish Bombardier for allegations the company refused to answer DOC’s questions.

DOC published its reasoning for the decision, but the math behind the tariff isn’t due to be shared with the parties for up to five days. Given the amount of commercially sensitive information, how much of the math will be in public documents remains to be seen.

Whether DOC levied a penalty may be revealed in the next publication.

As recently as last week, Boeing officials told aerospace analysts at its investors days that they expected $16m in tariffs to be levied this week and again next week.

Boeing was as surprised as anyone by the size of the tariffs.

Launch aid, subsidies and tax breaks

The DOC studied launch aid, subsidies and tax breaks in this proceeding. It also studied the credit and equity standing of Bombardier and the CSeries program.

The program launch began in 2008 with launch aid, DOC determined. All else flowed from there.

The Determination Memo, which LNC linked here, speaks for itself. In a nutshell, the DOC concluded neither Bombardier nor CSeries were creditworthy when launch aid was provided.

Non-commercial terms were associated with financial aid, DOC concluded. Equity was provided by governments when none would have been available from equity markets. The company was near bankruptcy when these equity investments were provided.

The launch aid and equity investments constitute aid subsidies under US law, the DOC determined.

Tax breaks and below-market property leases were also examined. Government airport leases at Mirabel Airport, where the CSeries is assembled, were examined, but the DOC didn’t have enough information to draw a conclusion on these rates. It continues to consider this.

The WTO

If all this sounds familiar, it is. These are precisely the kinds of issues the World Trade Organization was asked to consider in the USA-European Union complaints about Airbus and Boeing subsidies.

Among other things, the WTO found that launch aid per se wasn’t illegal, but that Airbus (the EU) violated terms by offering it to Airbus at less than commercial rates.

Bombardier maintains that its initial launch aid and its subsequent equity investments comply with WTO rules. It will have the chance to find out. Brazil filed a complaint on behalf of Embraer over the equity investments. This will likely take years to process.

But the US DOC case will undoubtedly be used as evidence against Canada and Bombardier.

Trade impact

The impact on trade following this week’s DOC decision and the ones to come caused concern before this week’s decision was handed down. Canada and the United Kingdom, where the CSeries wings are made in Northern Ireland, had threatened retaliation if an adverse decision was issued.

The shocking tariff level elevated concern to volcanic outrage. The premier of Quebec Province, where BBD is headquartered and the CSeries is assembled, demanded that the Federal government ban any new Boeing (and any “bolts” for Boeing) from entering Canada.

Aside from the harm this would do to Air Canada and WestJet, both with large Boeing orders, the legal basis for this is unclear.

Boeing also has facilities in Canada (Boeing Winnipeg) that employ Canadians. Boeing buys from Canadian suppliers, as does Bombardier from US suppliers. While US suppliers certainly will be hurt by the DOC decision (something that seems to, so far, totally escaped the DOC), the US suppliers are far better positioned to withstand the harm than Canadian suppliers may be if the government retaliates broadly against Boeing.

Likewise, the UK government is outraged at the size of the tariff. Unwinding defense contracts may be difficult. Perhaps the easiest retaliation is for building departments and inspectors to suddenly et cold feet over the construction of Boeing’s new production facility in the UK. Call it a Stop Work order, if you will.

Global sales impact

Naturally, Bombardier’s sales prospects in the US have just received, in effect, a Stop Work order of its own. No US airline will consider buying the CSeries now. (What happens with the Delta order is unclear, pending lawyers looking at options.)

But LNC considers the near-term opportunities in the US to be nearly nil anyway.

American Airlines is committed to the Airbus A319. United Airlines is schizoid about 100-seat aircraft for the moment. Southwest Airlines is married to Boeing. Frontier Airlines is married to Airbus, as is Allegiant.

Only JetBlue and Spirit Airlines seem possible near-term prospects. Both are Airbus operators (hence unlikely prospects for the Boeing 737-7). Both sent letters to the DOC in support of Bombardier. But any prospective orders are likely in the scores of airplanes, not the hundreds.

LNC believes Bombardier’s greatest near-term prospects for CSeries sales are outside the US.

Boeing’s complaint and the DOC’s shocking tariff may, in fact, hurt Boeing outside the US even as the domestic market is protected. (As noted above, LNC didn‘t see the ground shifting under Boeing anyway.)

Airlines that been considering CSeries, Airbus and Boeing may decide to reduce or eliminate Boeing’s chances to support more competition in the future against a powerful duopoly.

Lufthansa Group placed the launch order for the CSeries in part to support a third competitor against this duopoly. The possibility of others following shouldn’t be ruled out.

Perhaps Boeing and the DOC validated Bombardier’s underdog status. Everybody likes to root for an underdog.

165 Comments on “Assessing the impact of the Bombardier decision

  1. From where I sit just across the border in Canada I see this as a continuation of US protectionist policy. Why is it OK for Boeing to receive a $8.7 billion tax break from Washington state yet when the Canadian government supports Canadian companies it is seen as being unfair to US business. Of course double standards are nothing new when it comes to international trade. Guess we won’t be getting any Super Hornets up here.

    • Suggest you read up on Gatt92 ( WTO) and the ground rules re subsidies/launch aid /government help.

      • Don,
        Please fill me in on the details – perhaps you could provide a short summary.

        • Don: Arbitrarily written and then interpreted and re-interpreted rules don’t mean anything remotely close to fair and just le alone rational.

          In this case while Canada benefits from C Series, Washington has lost employees.

          Its all a bunch of political brinkmanship *&^% and should be stopped.

          Boeing got 8.5 billion and then points a finger at Airbus and smacks a startup that is a benefit to both countries, suppliers and the customers.

          Don’t ask me to swallow clap trap Like Citizens United which is exactly what this is.

      • Is America being decoupled from tbe West for when it collapses as a result of Clinton and Bushs dual failure? Or is the entire West going to collapse.o

      • handful of Austrian Typhoons could be available cheaply. ( unfortunately available only in the “no frills” version 🙂

        • My guess is Canada will say screw Boeing on this one, they can have a deficit that no one can do anyti8ng about and go with Grippen.

    • @Rod Hayward:
      “Guess we won’t be getting any Super Hornets up here.”
      I’m more worry about Ottawa slapping retaliatory tariffs onto those 737Max x111 & 787 x18 in the firm backlog destined for AC & WS….

    • The solution is simple
      Educate the Canadian and British public not to book on flights operated by Boeing aircraft
      I can see the t shirts now………
      I don t fly Boeing
      ( in French in Quebec )
      A 20% load factor drop on Boeing operated flights would soon deliver the message AJK
      ild soon

    • You are right. In fact the subsidise that Boeing receive from the US are huge. they come mostly from their military contract
      They did the same with Airbus 20 years ago. And mind you Airbus is also fully subsidise from the governement
      They are all a buch of hypocrite and specially the US

  2. I also hope that no more Chinook will come and that of course we will not consider Boeing KC-tanker or posseidon in the future.

  3. The best defense is a good offense. The CS-500 should be launched without further ado. Clearly, Boeing is losing the global public relations battle. From here on out, Boeing’s global trademark will be recognised for what it’s worth; a cry-baby goliath company. A long way indeed from what Boeing used to be known for; namely, the company with the can-do spirit of the 747.

    As Scott pointed out, everybody likes to root for an underdog — and with the CS-500 aimed squarely at the 738 MAX-8 — Boeing would be facing an altogether different playing field, while still being unable to do much with the runaway success of the A321neo.

    • Without having to worry anymore about US reaction to funding methods Canada can pay for it using their existing methods. Could really hurt BA if they can ramp up production.

    • Please OV, do not mention the name of this imaginary airplane, because it is driving Boeing crazy. Anyway, I don’t know what your are talking about. All I know is that this is precisely what’s behind this lawsuit.

    • OV-099:
      “…The CS-500 should be launched without further ado.”
      I still don’t understand why many folks here believe BBD @ their current state of financial health is still capable to launch this bird “without further ado” or asap, etc….

      With CSeries program financials/cashflow still in a big black hole and not projected by BBD themselves to be climbing back out until after around 2020, it’ll be commercial/financial suicide if BBD launch CS5 now.

      $ are not grown fm trees…..including those beautiful maple trees around Montreal suburbs.

      • @FLX

        A CS-500 would be relatively cheap undertaking (i.e. $1 – $2 billion)

        1) Canadian government covering for 1/3 of the costs through reimbursable launch investment loans.

        2) 2/3 of the costs covered mostly by down payments from all of the new customers — some of whom being fed up with the vindictive goliath cry-baby company.

        • Forget the CS500 it would be the death of Bombardier Aviation. The market is already saturated in the segment for now.
          The real futur will be the CS100 and CS300 for many years. Do your DD!

        • Canadian gov RLA paid for with money saved from cancelled Super Hornet purchase.

      • The CS500 sections would be built in China and shipped to Canada, when volume picks up a Chinese FAL could be opened. Most likely isthe CS500 a more competetive Aircraft than the C919 and all infrastructure to build the C919 could do the CS500 instead.
        Hence the C919 would be a limited domestic production run for a few years before they switch to assemble the CS500. Boeing might drop single aile Aircrafts and just do widebodies especially if many cusotmers trade in the 737-8 for 797’s as they become available.

        • While it does not happen often, I agree with OV-99

          So what do they have to loose?

          I also think they should be able to come up with some imaginative leasing arrangements direct or third party.

          And get another Canadian government loan for the C500, get it out in the world and kick Boeing butt all over the place and then you will see the US airlines move in as they will want that fine aircraft.

          Delta is not going to take this laying down, you have not hear any where near the last word on it.

    • Bare in mind that a CS500 would also compete with Airbus head-to-head. Having Boeing launch this action is bad enough for Bombardier, but having Airbus pile on against a CS500 would just make it so much worse.

      • As I understand Scotts article Canadian launch aid and rescue packages are modeled on EU practices, so it would be hard for Airbus to object. The main question would be does Quebec and Canadian governments feel like investing in it, a pretty big if.

      • @Joseph

        Airbus can easily stretch the A320 by 5-6 frames (i.e. A320-800?). That would move the aircraft out of reach for the CSeries. There’s plenty of room between the A320 and A321 (i.e. 13 fuselage frames). In contrast, the 737-10 will only be 4 fuselage frames longer than the 737-9.

        The fact of there matter is that Boeing is precariously dependent on the 737 MAX-8. That’s why Bombardier should go all out up against the MAX-8 and punch Boeing where they’re most vulnerable. For Bombardier it’s time to throw off the shackles pretending the CSeries is not a competitor to the MAX.

        • The fact of the matter is that a CS500 would indeed compete against the A320, a hypothetical A320 stretch notwithstanding. John Leahy has a long and storied history of criticizing the CSeries program for a reason.

          • I don’t think Airbus would mind competing in the single aisle market with the CS500, the C919 and the MS-21 instead of the 737MAX. A 5-6 frame stretched A320 would help to put the final nail in the coffin of the MAX.

            He’s got a nice little airplane there, but no, I’m not too worried.

            John Leahy to reporters after having toured the CS300 with the Bombardier CEO at PAS 2015.

          • Ok, lets not use press BS as facts.

            Airbus won’t like it, so what.

            List the rules they can hit back with?

          • @TransWorld

            Airbus has no history of being an instigator of trade complaints. For example, in response to the United States Trade Representative’s complaint against Airbus at the WTO in 2005, the European Commission in their response, were careful not to involve Japanese government subsidies for the 787.

            In response to a CS500, I’m sure Airbus would rather respond with developing new state-of-the-art hardware instead of the American-type sore loser mentality. 😉

            Intriguingly, one such respone could be an A32o-derived, shorter range aircraft incorporating forward swept laminar wings*. Among, other things, a forward swept wing and a rear fuselage engine installation and a T-tail, would be well suited for shorter fuselage lengths. Thus, such an A320-derived family would enable Airbus to offer an 132-seat** A315X (equivalent in fuselage length to the A318), an 156-seat** A316X (equivalent in fuselage length to the A319) and an 186-seat** A317X (equivalent in fuselage length to the A320). Design range would be no more than 2500nm.

            * http://www.enu.kz/repository/2011/AIAA-2011-3526.pdf

            **1-class max. seating.

            Airbus has flown a test aircraft for the first time with its new transonic laminar wing that it hopes will reduce wing friction by up to 50 percent. The gain in aerodynamic efficiency would lower carbon-dioxide emissions by 5 percent, the company said. The Flight Lab test aircraft, an A340, flew for about three and a half hours in southern France on Tuesday. It’s the first test aircraft in the world to combine a transonic laminar wing profile with a true internal primary structure, Airbus said. The tests will continue in the coming months, with about 150 hours of flying planned. Airbus said it plans to “simulate every type of imperfection in a controlled manner,” to fully determine the tolerances for building a laminar wing, which is a key goal of the Blade project.

            https://www.avweb.com/avwebflash/news/Airbus-Tests-New-Wing-229679-1.html

          • @OV-099

            Why would Airbus “not mind” losing a sale to a competitor?

            @Transworld

            If a sale is in the EU, Airbus would do the same as what Boeing is doing. Outside the EU, they would do the same as what Embraer is doing.

          • @Joseph

            Why would Airbus “not mind” losing a sale to a competitor?

            That’s not what I said. Nice try, though, twisting my words.

            As for your last point — no, Airbus has not done what Boeing is doing. The CSeries has 30 orders from airlines operating within the EU/EEA and 20 orders from the Lufthansa Group for Swiss Global Air Lines (i.e. Switzerland is not a member of the EU/EEA).

          • @Joseph
            C-series is already flying in Europe, Airbus still hasn’t asked for ant-subsidy tarrifs though some posters here assert that the EU rules are much the same as in the US.

          • @OV-099
            “I don’t think Airbus would mind competing in the single aisle market with the CS500”

            Why would Airbus not mind losing market share to a competitor?

            @OV-099 @MartinA

            There has been no basis until recently for Airbus to do what Boeing or Embraer is doing. The LH order, almost a decade ago, was the launch order and CSeries government funding was within WTO guidelines. The $1 billion “Quebec subsidy” that kept the CSeries program going was only provided mid 2016, and the $370 million “federal government subsidy” only this year.

          • @Joseph

            Quoting out of context, eh?

            Again, I said:

            I don’t think Airbus would mind competing in the single aisle market with the CS500, the C919 and the MS-21 instead of the 737MAX.

            Instead implies that the 737MAX would no longer be competitive.

            As for your continuous harping about how the EU and Airbus must react to Bombardier and the CSeries in the same way as Boeing and the US, why don’t you cite some evidence that such a course of action is being talked about/planned within the EU or Airbus. If not, put up or shut up.

          • Airbus is not unfamiliar with the WTO process, having used it in retaliation against Boeing’s previous WTO claims. Bombardier has also used it against Embraer. Businesses use the available tools to defend market share.

          • @joseph

            Again, in contrast to Boeing, Airbus has no history of being an instigator of trade complaints. So, in the unlikelihood of Bombardier initiating a suit against Airbus at the WTO, Airbus would probably counter sue.

            While Airbus seems to be wanting to move forward and negotiate, the mercantilists at Boeing show no intent of moving beyond their self-righteousness.

            As Mr. Enders told the Financial Times, “If we talk about China, if we talk about Russia or others, does anyone…believe that they will step back and say: ‘Now we understand the WTO rules, we will play exactly by the rules.’ Absolutely not, so this is why I call this an absurdity.”Absurd or not, for all intents and purposes the WTO has spoken, calling into questions the two financial support systems that have enabled Boeing and Airbus, as national champions, to maintain their leadership and strategic value. So that “verdict” is in.

            Looking ahead, an interesting paper recently released by the Canada–United States Trade Center at The State University of New York Buffalo that examines the implications of the WTO cases puts forward this thesis: that the mounting current pressures on U.S. non-repayable grants and other R&D assistance may require the U.S. government to shift to some form of “repayable launch aid” (RLA) in order to assist the aircraft industry to maintain its competitiveness in the global market place. The article (“A Case for Repayable Launch Aid: Implications for the US Commercial Aircraft Supply Chain” by Dr. David Pritchard) makes the point that this or some similar forward-looking approach would limit the self-contradictory process of Boeing trying to “have it both ways.” Right now, Boeing enjoys non-repayable R&D and government grants from the U.S. government, while at the same time benefiting from the very generous RLA programs of Japan and other countries. But at the same time it is attacking in the WTO the very similar European RLA funding that Airbus is receiving.

            https://www.europeaninstitute.org/index.php/115-european-affairs/ea-december-2010/1206-moving-beyond-the-boeing-airbus-wto-dispute

    • Twist: Boeing are preparing to take over Bombardier. Seems more likely to me everyday.

  4. What if Canada decides it will put a 300% tariff on Boeing planes? I think that will kill over 100 MAX and a couple of dozen 787s. I think Air Canada can dump these on the leasing market and get compensated by Ottawa and switch to A350 in a heartbeat. The feds can also fund a CS500 project with loan guarantees and large deposits from Air Canada and Westjet (which will be forced away from 737s) Then BBD will be competing with Boeing globally. I say Canada should get MORE aggressive with govt support of BBD vs being cowed. If they don’t appreciate Canada abiding by trade laws, then to hell with it!!!

    • The Canadian government don’t have to do that. They can just tell Air Canada and Westjet that if they don’t cancel all of their Boeing orders — effective immediately — the Canadian government will stop protecting them from the likes of Emirates and Singapore Airlines.

        • This was meant to appears above in reply to pegasusboots.
          It will be QR which take ACs Pax, and not EK, they have a MAX MOU ripe for breaking.

  5. Maybe Boeing is much weaker than most here feel and it really needs this political blocking out of competition on top of the big tax cuts, EXIM Bank, tanker like defense deals and NASA financing. It’s like health care, it can’t be profitable for all, still it’s strategically important to support financially & make sure the sector survives.

    • The first step in solving any problem is recognising there is one. Boeing’s management seems to believe that their problems are caused by others and not their own ineptitudes.

  6. From all accounts this is DLs problem in the short term. They need somebody to remarket these frames. I mentioned Airbus in this context before, DL could use the credit for other AB products. I’m not sure they would like A319s, but how about launching A322/323? Made in Alabama, of course.

      • Leeham has reportes that Airbus are quietly working on an A320 based MOMkiller. DL would be an obvious target, an airlines which perferes proven designs and capital light aircraft. Main market would probably be US, and it would be quite different to existing A320s, so dedicated facilites in Alabama would make sense. What Airbus needs is a big launch. DL on the other hand have a commitment to C series which will be very hard to get out of. Not unknown for A and B to take near new aircraft built by a competitor off an airlines hands in order to get their product in. Even easier in this case as Airbus doesn’t have a CS-100 competitor, not a real CS-300 competitor, A319 too uneconomical.
        If nothing else Airbus could also take them as trade in on more existing Airbus models. As DLs C series we’re cheap Airbus could possibly turn a profit both on the C series resale and on a new date.
        Does that make sense now.

  7. What started badly ended even worse. The level of protection determined completely exceeded any reasonable value which makes me think that BBD was very uncooperative with the authorities, which would have been an unintelligent approach (one more).

    This and other specialized websites were generally very critical of Boeing. I believe that this has happened since very rare claims of this type came from the long-standing and very competitive US aviation industry. In other industrial segments a threat of anti-dumping action would have been taken more seriously.

    The fact that a long-standing company has been operating at the expense of government subsidies does not seem to concern most aviation experts (as the LNC).

    But I would like to bring another point of view. What if this is not a competition among companies but for the governmental economic strength and willingness to provide subsidies? It is logical that large and poor democracies like Brazil and India will not be able to divert money from more urgent needs in order to compete in the industry aid arena.

    Authoritarian and reasonably well-managed countries such as China will have the power to forge an industry (though Richard Aboulafia does not believe). This would be a very negative result.

    I think that most neutral people would like the WTO and OECD guidelines to be respected within the aviation industry. Lack of access to relevant data, long trial time and ineffective enforcement makes the WTO cases frustanting.

    • @Caerthal:
      “The fact that a long-standing company has been operating at the expense of government subsidies does not seem to concern most aviation experts (as the LNC).”
      Probably because of another fact: Every major player in commercial aerospace industry, including those based in the U.S., has been doing the same/similar version of the same and for a very long time.

      • I agree, the high costs of aircraft development preclude any reasonable company from sourcing funds through traditional debt raising institutions making it a requirement to receive government support. Hell, we’re not talking about building a new Tesla, the costs of developing aircraft have reached high proportions and in some cases crazy numbers.

        • The so called rules are as mucked up as anything is possible.

          Better not to have any.

          This has been a slow strip to show the emperor is naked.

          • Aren’t Boeing aiming at UTC as well here? Maybe trying to send some sort of message about the Rockwell Collins deal? We have Friends and will fight it.

        • That’s funny! Embraer has been doing that since E1. Using risk sharing partners and shareholders funding to develop their airplanes. But people seems to ignore that and prefer to support protectionism.

    • «The level of protection determined completely exceeded any reasonable value which makes me think that BBD was very uncooperative with the authorities, which would have been an unintelligent approach (one more).»

      No, just listen to Donald Trump, Steven Mnuchin, Wilbur Ross and Steven Bannon. The decision is completely in line with and the result of their agenda of protection and nationalisation. This agenda will hurt the US and the US workers badly.

      Europe, Canada, Australia, Japan and China will work together and against the US regarding trade topics. There is no way, that the US will succeed with this policy against the rest of the world.

  8. For all the Boeing bashing, I suggest you check their stock price. Whatever they are doing – it is working. And save all the talk about everything is up – Boeing has outpaced everyone and everything. Wall Street is endorsing them big time.

    • BA stock price is up mostly because of (1) Insanely higher defense spending (2) expected serious corporate tax cuts. The stock prices of peer companies that will benefit from those two things like Lockheed, Northrump are similarly up strongly. So, these are essentially political gifts. I guess, not that much different from the topic here.

      • @Orville Wong:
        “The stock prices of….Lockheed, Northrump are similarly up strongly.”
        Agree, that whole aerospace/defense industry sector is up in valuation due primarily to major policy shifting in a direction favoring that sector. When Boeing outperform peers/sector benchmark, then we can start discussing what Boeing in particular has done more correctly than the others.

        “…these are essentially political gifts.”
        Alternatively known as economic windfall due to major shift in politics/policy. Then again, what else can the world expect fm the Trump admin….

        • Alan.

          When the last tax changes took place the big companies used the money for buyer buy back.

          It has nothing to do with real demand, its an artificially one that is propped up by the American citizen who pays Boeing to buy back their own stock.

          Nice for the ones at the top, screws the country.

          Why is not Boeing putting that money into new aircraft?

    • @Alan:
      “For all the Boeing bashing, I suggest you check their stock price”
      I also suggest a quick read of anything fm ‘Public Policy & Industry 101’.

      “Whatever they are doing – it is working”
      I’ll be totally surprised if is not…..especially when “working” is defined purely as propping up stock price.

      “Wall Street is endorsing them big time.”
      Straight fm the text book.

    • Pimping their stock value has been an ongoing concern for decades. Boeing has worked on producing all the secondary “symptoms” of a successful corporate entity. But afaics this is a hollow shell. No real first order reasons for the indicator effects.

      • @Uwe:
        “No real first order reasons for the indicator effects.”
        Such are not required for the sole purpose of propping up stock prices @ least for the short-term and especially for info consumption/buy & sell decisions by day traders/speculators/Wall Street gang….

  9. “The DOC yesterday preliminarily decided to impose a 220% tariff on each CS100 delivered to…”…

    Does the DOC have power to impose tariffs? I really don’t think they have that power. We are going back a few decades for me here but I thought they could only issue recommendations that have to be imposed by Congress or the President.

    tortugamon

  10. When’s the WA supreme court rule again on McCleary and education funding? Maybe they can hit Boeing up for 8 billion of unconstitutional tax breaks. The state constitution says education is the paramount duty, not building aircraft.

    • Wonderful idea! Can’t wait for it! The sooner the better! BA can then build a new Charleston factory for the 797, and start to move the Max line to either a spanking new, “union-proof” Mississippi or Louisiana factory (with lots of humongous state tax incentives). Bravo! LOL!

  11. “The premier of Quebec Province, where BBD is headquartered and the CSeries is assembled, demanded that the Federal government ban any new Boeing (and any “bolts” for Boeing) from entering Canada. Aside from the harm this would do to Air Canada and WestJet, both with large Boeing orders, the legal basis for this is unclear.”

    Scott, that is not what Premier Couillard meant, nor is it what he had in mind, when he said that “not a single bolt, not an airplane part, and of course not an airplane, made by Boeing should be allowed to Canada.”

    He actually referred specifically to the Super Hornet and was echoing what Prime Minister Trudeau had said before him on a few occasions recently.

    Believe me, this had nothing to do with the 787s and 737s that Boeing sold below cost to Air Canada in order to turn AC back into an all-Boeing operator again. And it’s the same thing for the UK.

    Prime Minister Theresa May, like Trudeau and Couillard, is threatening to put on hold any Boeing military airplane acquisition until this issue is resolved to the satisfaction of Québec, Canada and the United Kingdom.

    That being said, I agree that what Couillard said, and the way he said it, could be interpreted the way you did. But you have to keep in mind that he was speaking in French and was addressing the people of Québec in the context of an election campaign that is about to start.

    • Guess the Canucks can do without any further parts and technical support for their CC177s, and say goodbye to existing BA CF18 support. (Well, Trudeau probably would rather see the RCAF converted into a Viking Twin Otter/Herc SAR force anyway.) As for the Brits and their current (and future ) “bathtub navy”, my won’t the new QE class carriers make fat, juicy, and tempting Russkie targets with no Posidens around. And, say goodbye to any Trident replacements, LOL.

      • MontanaOsprey:
        All valid points but fm only 1 direction perspective re the harm of an escalating out-all trade war as I hv pointed out yesterday under a diff story but the same topic.

        In return for example, about half of all 787s to be assembled in Everett & Charleston may suddenly lose T1000 supplies and the “fat & juicy” F35B in which the U.S. Marines hv been dying to get their hands on will hv missing LiftFan parts rendering it useless for V/STOL mode ops defeating the only reason of its existence….all due to insane tariffs.

        I maintain there’s no real winner in a trade war….everyone gets hurt.

          • And when you pisss someone off, you can thro logic out the door.

            Who is going to invade Canada in the next 10 years?

            Their biggest obligation is NATO and an adjunct to the US in keeping their territory clean of Russkies.

            A neighbor we don’t have to worry about.

            So NATO has to pick up the slack, the US does, and the US looses a slew of jobs.

            Canada sell the C17 off to others and buys A400.

            They give up the Chinook.

            And that does not count on the affect on the UK.

            Tons of Helicopters out there.

            Boeing is grossly stupid.

            Anyone care to review the Vietnam War and what can be done by determined people?

      • @MontanaOsprey

        BA support for legacy Hornets is rather minimal in Canada. L3 MAS in Mirabel is pretty much self sufficient (including having all the software codes that Canada may use). Also have access to a bunch of retired frames.

        But hey, maybe Boeing wants to blockade the RCAF 😉
        That would be a really good marketing approach for any countries contemplating buying Boeing military products…

    • Hi Normand, plenty of different ways to skin a cat. EG governments control infrastructure, gates in new Canadian terminals don’t have to go to AC if they stay with Boeing, instead Porter’s island runway gets expanded. Lutton gets a rail link and another runway, Stanstead gets frozen, unless Rayanair would like to buy their aircraft from somebody else. Inspection regimes, landing fees etc etc can all be tweaked to work against a specific operator if he doesn’t behave. It would be wrong in most countries to think that you can ignore strong govt messaging.

  12. The problem for Bombardier, as I understand it, is that Canada would have a clear case against the USA on WTO grounds, and possibly on NAFTA grounds too, but the tariffs would stay in the meantime and it would take years to resolve if Canada did decide to open a case at the WTO.

    • Exactly, but just now it looks like DL have to take the planes, even if they can’t import them. They must be talking to every leaser or airline who’ll answer the phone about a resale. Hence my suggestion that AB will be ringing DL with a deal if they can find something to sell them.

      • If Bombardier opened a FAL in Wichta at the Lear facility and sent the sections by train it would mimic the Renton plant and the Airbus Mobile plant. Then they would be US made and applicable for US export credit financing and some US government financing as a US Aircraft powered by a US Engine.

  13. This strikes me as quite a poke in the eye for Pratt & Whitney, who make the C Series’ engines and probably account for the better part of that aircraft’s superb performance.
    Pratt & Whitney are owned by UTAS – aka United Technologies – who are every bit as influential in Washington as Boeing.
    Its interesting to note that Pratt & Whitney do not power current production models of 737, 747, 777 or 787 (I’m not sure about the 767) but do power Airbus A320 series and Embraer E2s and some other relatively minor programmes in Russia and Japan.
    If the stalling of the C-Series programme helps Pratt & Whitney with their recovery on the A320-NEO programme, then Boeing may have inadvertently (?) hobbled a product that doesn’t compete with theirs, but to the advantage of a product that does!
    Though protectionist retaliation in trade disputes leaves everyone worse off, unfortunately this lesson needs to be taught to and learned by those who start these disputes in the first place. If there is no come-back, those people will win. The cost to the aggrieved party is more if there is no retaliation, but less if there is even though the total cost to all parties is greater.
    Having said that, Bombardier and Canada’s first action should be to set a dog to bite a dog, and encourage UTAS to weigh in on their side.

    • @Chris Lee:
      “Its interesting to note that Pratt & Whitney do not power current production models of 737, 747….but do power Airbus A320 series and Embraer E2s and some other…”
      Correct, P&W turbofan product range has no application on any nex-gen Boeing type.

      On the other hand since about 7~8yrs ago, it’s even more interesting for me to note P&W’s strategy for PW1000G(Known simply as GTF earlier) industrialization: Developing an unprecedented, ultra-hi by-pass geared turbofan architecture and its associated supply chain almost simultaneously for adoption in+integration with FIVE independent commercial airframe platforms/families.

      Given the level of complexity involved in development, cert and supply chain logistics, such strategy is audacious @ best and @ worst, just seems like trouble waiting to happen(And it did happened…I should hv bet on today’s outcome yrs ago) even for an experienced propulsion giant like P&W.

      Last time P&W independently(i.e. unrelated to IAE) tried a turbofan program this complex, it was the JT8D family nearly half a century ago….and even then, there were really only 3 main airframe platforms to worry about concurrently: 727, DC9 and 737

      “…relatively minor programmes in Russia and Japan.”
      Interesting that U think the MC21 and MRJ programs are “relatively minor” when each has firm orders in the backlog that exceeds the E2Jet program backlog….

  14. I wish Airbus had bought into the c-series a couple of years ago [instead of the Canadian state].

    I think the c-series is an amazing product, but would work/sell better as part of a larger family – filling in the 100-150 segment where airbus don’t really have a competitive product. adapt/upgrade the FBW to an airbus std. [if needed] and you’re kinda there. I was amazed Airbus didn’t invest in the line – such an easy way to cover that segment – little risk – airbus family marketing etc.

    The a320 should be the smallest [and in terms of orders is pretty much there already] of the airbus narrowbodies, with the a321 and future [perhaps] a322/321+ covering the bulk of that market.

    For now though… PLEASE non-US airlines… punish Boeing, and support the c-series… if banks were too big to fail… the c-series is too beautiful/optimized/efficient to fail… and seems to be a total hit with customers and user-airlines.

  15. Any complex mass produced product is sold for less than production cost and a great many are sold at below the long term cost at launch. It’s just the way that the world works, you have to build confidence and quite often finish development while the product is in service with the customer and obviously you are taking a risk because you don’t know how many you can expect to sell . Boeing knows that, so neither they or anyone else will ever be able to develop another airliner again if these rules apply .Check mate, and don’t think that fancy accounting will save you.

    • Actually I have probably said all that before, haven’t I? One of those subjects like the A380 that goes round and round.

      • Far too much emotion here, this is about cold hard cash. Unpopular sector, although I can see that changing as the market develops. Boeing and Airbus are about to hit it with something even better. If they don’t complete directly, it only confirms that the market is too small. Why are Boeing bothered?

        • They are afraid of the mouse.

          Phobia like the POTUS has is not rational, you have to treat it not figure out the root cause as that’s just a short circuit.

  16. Think about this! If U.S. airlines are now denied access to the C series, Air Canada will benefit by this using the C series to strategically select U.S. points of departure for connections to overseas flights though Canadian Hubs.

    • @Robert Wall:

      You nailed that one very well.

      Air Canada will soon definitely increase its market share on transborder routes, with an exactly “right sized” product – that’s superior in both CASM and comfort.

  17. Is it required to have an „N“ on the tail of an aircraft to fly routes within the US?

  18. And can anyone tell me the appellant process to this?

    So far we looks at it as fact when there is always a way around things.

      • It is also the worst method, strategically speaking.

        For Canada is in the middle of very important negotiations with the US, and the latter want to eliminate Chapter 19, which Canada normally recourses to against the abuses of American businessmen.

        Since Canada always wins when using Chapter 19 the United-States want to get rid of the measures therein. And if Canada does not comply to their wishes they are threatening to pull out of NAFTA altogether.

        • The record of NAFTA Chapter 19 lending some fairness to trade with the US is a great example of how to allow trade to prosper. It conterweights a US government system that time and time again shows it is run and controlled by wealthy US companies and individuals who contribute money to get their desires (whether just or not) implemented. Chapter 19 has consistently overturned absolutely illogical trade rulings that the US government has made when exposed to the harsh light of an independent decision making body. If Canada ever allows this clause to be removed, it will cease to become an independent country and will just be a puppet of the US. On the bright side if Canada became the 51st state, than suddenly US politicians might start screaming abuse of monopolistic market power by Boeing to try and eliminate competition.

  19. Everyone thinks Boeing wants to kill the C Series. Of course they do, and so does Airbus. But they can’t kill it on its own merits, or lack of, because the aircraft is too good, and they know it. It’s too late anyway.

    What I think is behind all this is that Boeing wants to protect the MoM project, which is internally competing with the NSA for funding.

    Boeing has only one cash cow left and it’s the 737. And they know that when the CS500 will be out it will be the beginning of the end for the 737 and they will have to develop the NSA.

    But the 737 has become too lucrative for Boeing to replace it at this stage of the game. So they are trying to buy time by attacking the C Series. And timing is the essence here.

    To attack the Delta deal makes no sense at all, but they have no choice because once the C Series starts operating in the US under the Delta livery they know they won’t be able to stop the tide of new orders that will follow.

    Of couse we all know that Boeing did not even compete for this order. But in this case Boeing does not have the luxury of a recourse to logical arguments. So they need the American tribunals to do the dirty work for them.

    For it is now becoming known to the entire world, thanks to Boeing, that this judiciary system works identically to the judiciary system we find in countries like Russia, Iran and North Korea. But I am only talking about the financial tribunals in the case of the US.

    • Well that gets deep into mad magazine.

      I don’t buy it as interesting as it sounds.

      The C series is a long term threat and the impact is going to be nothing to the 737 program.

      As the 737 does not hold a seat range down in C series and the max seat stuff is almost never used the realistic seat size is still below the 737.

      500 might, but by then its a new 737.

  20. There seems to be a lot of talk of fighting/ beating/ burying the opposition. This is not war, the big OEMs will survive and not disappear. BBD has a massive short-term problem and must fix it even if toadying to Trump/ Boeing is the price to pay. They have enough on their hands getting the Cseries ramped and sold without making things worse.

    By merely surviving they have won and with each year their proposition looks better. In Machiavellian terms if they are too successful they prompt the NSA too early. So they want to fly under the radar filling their FAL but making barely a dent in the current market domination. Once they have begun to ‘get well’ and only then can they even dream of the next step.

    The big one here is what it says about Boeing and how it shows their hand in quite a revealing manner. There Seems to be no game play beyond short-term share price ramping. This action looks good on paper but must, must have ramifications down the line that increase uncertainty and risk to Boeing itself.

    Why are they doing this? Boeing is turning strong profits, has a solid order book, is raking in defence dollars. Why upset the global market for a paltry Cseries order equal to just over a months production at Renton. The Cseries will survive but if they are not careful it may be called the A314/A315 or the C919nao (new airframe option).

      • Ahhh but does this give Boeing breathing space to get the B797/NMA out of the hutch by attempting to shore up the MAX for a little while longer?

  21. The fundamental point here is that commercial passenger airplane building is in essence a loss-making business. This is due to the extremely high cost of developing and certifying new aircaft and the time value of money. The time needed to return the investments is far too long and the risk of a commercially unsuccesful design is too high for any investment of normal commercial terms to be available for any airframer.

    As Javier says in”The Blog by Javier”: https://theblogbyjavier.com/2011/11/03/787-break-even-for-dummies/

    “What is critical in a commercial aerospace program as an investment project? The long development period makes it difficult for the positive cash flows at the second half of the life cycle of the aircraft to compensate the initial cash outlays spent in R&D, capital investment and production of the first units. Why is that difficult? Due to the time value of money: A positive dollar of the tenth year will only compensate 39 cents of the first year (at a discount rate of 10%)”

    There are some very succesful airliner programs that have very likely given a real return on investment, but the real calculation must include the corrrectly discounted losses of the commercially failed projects and the various forms of aid must be subtracted before a true evaluation of the overall profitability can be determined. Still, the risk of losing everything with the next big program is always looming.

    Various nations still want to produce airplanes. The reasons why they want to do it even if it is not commercially viable are many. One of the prime reasons is the need to be able to produce military aircraft when necessary. Other very important reason is to develop or maintain the high technical skills and know-how needed for airplane production. The engineering know-how spreads widely in the economy of the country and sustains many jobs not involved at all in aircaft production. This brings us to the obvious benefit of aircraft production; it supports a great amount of high-paying jobs.

    Thus, on a nation and society level, it can very well be worth supporting airplane production by taxpayer money. The real profit-and-loss calculation when everything is taken into consideration is notoriously difficult and I will not even try it here.

    All countries, without exeption, which have airliner manufacturers have supported them by various forms of loans, capital, essential research work, tax incentives, fat military contracts etc, either at beginning or at some difficult or critical point. This is no big problem for most countries in the world. In the US, where market economy faith is a de facto religion, this is far more difficult to accept and admit. No US government will let the whole US aerospace sector fold. There will always be a bailout or other help. No matter how badly Boeing might be run, it will always be safe. It might be called then Government Airplanes (GA), like GM (Government Motors), but so what. It will remain.

    On the military side, loss-making is a given. If the respective governments werent almost always willing to cover the cost overruns in one form or another, all warplane manufacturers would be bankrupt. Nobody is asking if warplanes make a profit or loss when in real use. War is a tremendous loss of everything, but here we stupid humans stand.

  22. Does anyone predict a Delta cancellation of the CS100 order followed by a Virgin Atlantic (or Air France) order for CS100?! And on delivery, they just won’t need them any more and BAM! DL will swoop in to save the day…. I’m sure they can find some way around this….

  23. “Everybody likes to root for an underdog.” Particularly if the underdog is notable more comfortable in terms of PaxEx.

    And yet — The comfortable and (mostly) quiet MD-90 and 717 were underdogs that eventually lost to market clout. Likewise the L1011 lost out to the arguably less fabulous DC-10, which itself eventually lost out to Boeing.

    Even in home electronics, the technologically and quality-superior Betamax lost out to VHS. I’m sure we could catalog lots of underdog fights that eventually were decided in favor of the lower quality market leader (aka monopolist/duopolist powers).

    We shall see if Europe and Asia can keep Bombardier afloat. I hope so, they’ve made what appears to be a very efficient, comfortable aircraft. It deserves to make the case for itself on its in-service performance.

    • @Normand Hamel:
      “Air Canada CEO Calin Rovinescu lent his support to the company…he found the ruling “troubling” because of its effect on stifling innovation and competitiveness.”
      This is a surprising statement by AC in this trade dispute as I was expecting neutral/low profile response fm AC.

      AC siding with BBD is not surprising given their stakes in CSeries program via CS3 order. However, AC essentially siding with DL, 1 of AC’s major competitor in the trans-border mkt and also increasingly in the intercon/longhaul connecting mkt(e.g. YVR hub vs SEA hub only 205km fm each other and YYZ hub vs DTW hub only 345km fm each other), is a huge surprise for me – DL is a key enemy of AC fm all practical perspectives.

      When your long-time enemy is somehow denied access to the same ‘advanced weapon’ that U will be using to fight against them in the same battlefield, U should normally be cheering. But when U are choosing to side with that enemy instead, both of U must be facing a far far larger common enemy than the general public understand……

      • Don’t think he is worried about DL, rather that BBD goes belly up and he can’t get CS aircraft?

        • @Anton:
          Alternatives to CS3 no-show for AC do exist such as 190/195E2 or even the dreaded Max7(e.g. commonality with Max8/9 is not too bad an alternate outcome for AC).

          In contrast, a chance to gain ‘battlefield territories’ fm yr key enemy due to asymmetric access to new weapon does not appear that often throughout N.American commercial aviation mkt history….

  24. If these airplanes were so cheap for Delta, but with something like 7,000 new neos and max being sold, how come none of these customers of the entire world want cheap CS?

    • Particularly as it’s hard to even get your hands on a NEO for years. Some of it is a confidence issue but mainly it’s the wrong size for market.The nodal structure of airline travel is changing at a surprisingly rapid rate, so maybe there is hope, but if anything it seems to be going the other way.
      Still it has this niche all to itself and should be worth at least $3 million more than a max 7. Boeing has done a remarkable job of extolling its virtues.

    • Delta, at least, seems to have an analysis that supports quite a bit of 110 seat flying, since they fly 91 B717s. Yes, I’m sure they got an ‘opportunistic’ lease rate from SWA, which helps, but it still has to be crewed, gated, landing fees paid, fueled, and flown profitably.
      They seem to believe in the segment, ordering up to 75 more planes with similar capacity.
      It ties in with reducing CRJ1/2 flying, and focusing on well-timed feed from small mainline jets. Delta has figured out that HVCs want a real F cabin (and at least a good Y+ offering) with the dispatch reliability of mainline. CR9s and particularly E175s also generally meet that need (CR7s do OK too).
      Now, can AA or UA make that model work as well? They may lack the vision, but I think they could do it.
      The CS100/300 would also serve well in what might be called domestic long-thin. DTW to various secondary airports in the LA basin would be good examples for an aircraft with the reported economics of the CS300.
      The plane is a bit of a game-changer, but several airlines just aren’t up for the complexity of the game yet.

      • @Raflw:
        “Delta…fly 91 B717s. Yes, I’m sure they got an ‘opportunistic’ lease rate from SWA.”
        DL’s order for CS1 x75 is also clearly an “opportunistic” buy fm BBD.

        U simply don’t see a mainline narrowbody manufacturer in financial+global mkt sales distress every decade….especially 1 dying to get just a few blue-chip airline customers onboard a new cleansheet program.

        I don’t foresee DL will run into this kinda opportunistic deal for clean sheet design again during Ed Bastian rein as CEO(i.e. 1~2 decades).

          • @Anton:
            “Next month with the B797?”
            3 questions for U to think b4 speculating Boeing must offer DL give-away prices on 797 a-la-BBD style re CS1:
            A) Who told U/Where did U learnt that 797 program is a firm go ahead and even more amazingly, will be launched nex mth?
            Simply your typical gut-feeling type answer?

            B) U honestly believe Boeing hv been in any kind of financial distress @ a level anywhere near BBD is experiencing over the last 5yrs or will be over the nex 5yrs?
            A clue: Look @ their recent financial results/projections/stock price trend b4 attempting any gut-feeling type answer.

            C) U honestly believe that after launch, 797 program will be stuck with no more than 2 blue chip airline customers worldwide onboard for say…4yrs?
            A clue: CSeries program had only 2 blue chip customers(i.e. LH Group and KE) for EIGHT yrs since launch until the DL deal came along last yr.

          • Boeing Market Cap $150 Billion.

            If the share price goes up 5% after tomorrow the MoM is almost paid for.

    • production of C series is just ramping up as production has been constrained by how fast Pratt can supply engines. As the glowing reviews come in from passengers, pilots, operational and maintenance staff, there will be increasing order velocity, as it stands Swiss Air and Air Baltic are wishing they could get more c series faster than they have been able to get them. I can’t wait till Delta starts flying them here in North America as they are more comfortable to fly in than either the 737’s or 320’s…hopefully the US government gets its head out of the sand and overturns this anti-competitive ruling so the US public doesn’t have to wait until 2019 when Air Canada will start flying the C Series on transborder routes.

      • @Rational Guy:
        “I can’t wait till Delta starts flying them here in North America”
        But U must wait even if U can’t and that’s the whole point of this trade dispute for all air travel consumers based in the Trump jurisdiction.

        With the impending reconfirmation of tariffs/duty in a few mths, there’s no way DL/BBD can find an econ sustainable way to import these birds upon the Apr2018 delivery due date…

        “…they are more comfortable to fly in than either the 737’s or 320’s”
        Which means absolutely zip for the Trump admin in which almost all key decision makers within hv no recent decade experience flying in U.S. domestic Y(or even F)…because all of them, in their previous Corp America lives, only fly in corp private jets.

        To be fair, they probably hv experienced BBD products many times b4 via LearJets & Global series….

  25. Comments and question: From the articles and comments I read on this blog it appears that the C Series is a great product. If that be the case then why was purchase of Bombardier to 49.5% by Canadian governments needed and why is Boeing alleging that Bombardier is selling below Bombardier’s cost? If one has a great product I would think there would be no need for investors of last resort (governments) and no need to sell below cost. Any insight from the well informed authors and commentators on this site would be much appreciated. Thanks!

    • Bombardier was in poor financial condition before starting the program and simultaneously was developing new corporate jets. Sales ignored the Q400 and CRJ and with it needed cash flow. Cost overruns of the new corporate jets and CSeries put BBD on brink o bankruptcy, requiring a government bail out. 49.5% left BBD in control of CSeries.

      Launch customer pricing is common, as are deals in certain circumstances below cost. Also, airplanes produced during early production ramp up are always below cost due to learning curve.

  26. Some other analysts besides Scott are weighing in.

    “Richard Aboulafia, a prominent aviation analyst with the Teal Group, [said] this week’s ruling ‘a tactical victory but strategically a disaster’ for Boeing.”

    Adam Pilarski, VP with consulting firm Avitas, said, “This is letting a bully beat up others, in this case unnecessarily. Bombardier is a niche player with a small domestic market. They’ll produce in a year maybe what Boeing will produce in a month.”
    “It really hurts me to see this,” he added. “I’m an American. I know people at Boeing. It makes me ashamed. It’s moral bankruptcy.”

  27. “In 1845 Frédéric Bastiat, a French economist, wrote an open letter to his national parliament, pleading for help on behalf of makers of candles and other forms of lighting. The French market was being flooded with cheap light, he complained. Action was necessary: a law closing all windows, shutters and curtains. Only that would offer protection against the source of this “ruinous competition”, the sun.”

    https://www.economist.com/news/finance-and-economics/21729796-worry-encouraged-president-donald-trump-more-will-follow-three

  28. Something for AF Robert.

    Currently the province of Quebec holds a 49.5% equity in the CS program. The case was brought against BBD with 50.5% equity.

    If the Quebec province takes 50.5% of the equity and BBD 49.5% what can the COD do against the NEWCO that sells the C-Series.

    NEWCO is using Maribel to assemble the CS.

    How many billions $ worth of aircraft did Boeing sell to Airlines that is 100% owned by government? Is there any law that you are not allowed to import from Government controlled companies into the US?

    Where is oil and other commodity imports come from, many of those are State controlled.

    See the 737-700 discounted price is $35M, so than squeal a bit about the CS price but not much.

  29. List a NEWCO-CS that sells the CS1/3 with BBD a minority shareholder. NEWCO-CS has not received subsidies etc.

    How much US Government pension funds money is invested in listed share companies? Is using that investment money to develop products regarded as Government subsidies?

  30. Stupid, absolutely stupid – Boeing accepts enticements from SC and WA yet whines about competitors. This will hurt it outside of the US and inside the US. (Didn’t Delta say it wanted more competition? I predict Delta will switch orders to Airbus and Embraer to avoid Boeing.) Boeing continues to lack leadership.

  31. One thing that I do wonder about, how can BBD ever push the price up to a profitable level?

    • Same question was in effect asked about Boeing, with its huge increase in sunk costs due to mismanagement of 787 program. Bombardier did not have the strong cash flow from other programs that kept Boeing going, both had serious program delays.

  32. Maybe this could be a forced opportunity that could bring significant growth to Delta. With the current political climate think Delta should be able to start a Delta Canada (DLC) without major problems.

    Establish 2 Hubs, Halifax and Winnipeg. Serve destinations from there with direct flights in Canada, to the USA, Central America and Caribbean that is not served with direct flights from Europe by DL or its European partners using the CS aircraft. Flights from DL and partners bases in Europe to feed these hubs.

    Halifax could be a good destination for European LCC using single aisles who’s passengers could then fly further with DLC. Iceland and most destinations in the UK and Ireland will also be in easy reach with the CS’s for DLC.

    New destinations in Europe could also be opened up that feeds directly into these two Hubs. Counties like Hungary, Romania, Poland and Austria comes to mind. A330-200 or 767-300’s possibly ideal size aircraft.

    A Caribbean registered and based company could also create various opportunities build around CS aircraft.

    I can see similar apply for Jetblue in the Caribbean that is also interested in CS aircraft.

  33. Question re the tariff calculation.

    Is the percentage amount designed to bring the CS price up to 737-7 _list_ price?

    • I tried to look at a few angles, the current “official discounted” price of the MAX7 is ~$38M. So the 4 October ruling most likely another 50-100% on top of the 220%.

      So the CS1 could cost Delta $80M each of which $60M will go to the US government.

      Looks like they got a figure for the Government “aid/assistance” plus soft loans and spread that over the 75 air frames?

      If I was Delta will take legal action against Government and claim for loss of income resulting from the CS100 aircraft being made impossible to purchase.

      • 737MAX7 list := $90.2m
        $90.2m / (1 + 2.2 ) = $28m
        ( would fit pricing assumptions given on this purchase.)

        i.e. this commission “corrected” via the tariff levied the CS1 pricing to adjust to Boeing list prize for a 737MAX7.

        Very thinly cloaked protectionism.

        • Very possible.

          Don’t think Boeing told the commission they “dumped” 737-700’s to United for $25M?

          But if the price goes to something stupid what could Delta do. The 319NEO to big and huge 320 family order backlogs. MAX7 only available Q2 of 2019.

          Not so sure if they to keen on Embraer who seemed the happiest of all parties with the ruling.

          The B717-200’s has the nearest capacity to the CS100 and is only ~15 years old.

          Replacing MD88’s is the big problem, 25-30 years old. The plan was a combination of CS100/A321/B737-900’s. Now I won’t rule out an order for 320CEO’s in a new mix?

          The CS family looks like excellent aircraft, but sad to say, if it wants to survive, it will have to be spun out of the BBD stable?

          Montreal, Toulouse, the French connection?

          • As far as I can make it out the proposals that DL asked for 75 new single aisles are the replacement of MD9-30’s (65 aircraft)?

            DL’s 319 and 320’s (120 aircraft) are also aging and replacement will be needed in the not so distant future, by then the 717-200’s (90) will also become due for replacement.

            So approximately another 200 aircraft for replacement in 5 – 10 years. Think DL had CS1/3/5’s in mind for these replacements?

          • @Anton:
            “Don’t think Boeing told the commission they “dumped” 737-700’s to United for $25M?”
            Totally irrelevant whether told or not told fm the U.S. Trade /Commerce rules perspective.

            A domestic producer can give away airplanes for free(let alone still charging UA $25m) to a domestic customer anytime without breaking any U.S. trade/commerce rules.

            Whether that’s ok under WTO rules is a diff story but I don’t think the Trump admin cares much about WTO anyway….

    • Hello Uwe,

      There are separate countervailing duties (government subsidies) and dumping cases. The preliminary duties ruling last week was for the countervailng duties (CVD) case and has nothing to do with the dumping case. CVD duties are based on recovery of prohibited subsides, and have nothing to do with sales price, except when the duty required to recover the prohibited subsidies is calculated as a percent of average sales price. CVD duties could be imposed on a product which was not being sold below home market or production cost. The ruling in the dumping case which is due October 4, will be based only on sales price vs. production or home market price, and will have nothing to do with subsidies or the price that the 737-7 or anything else is sold at. A manufacturer who had received no subsidies at all, could still be levied with dumping duties if it were ruled to be selling below home market or production costs.

      See excerpt below from Chapter 1 of the USITA Enforcement and Compliance Division Antidumping Manual, which may be found at the link after the quote.

      “1. The Antidumping Law
      The U.S. AD law is designed to counter international price discrimination, commonly referred toas “dumping.” Dumping occurs when a foreign firm sells merchandise in the U.S. market at aprice lower than the “normal value” (NV) of the merchandise; generally, this is the price the foreign firm charges for a comparable product sold in its home market. Under certain
      circumstances, dumping may also be identified by comparing the foreign firm’s U.S. sales price to the price the foreign firm charges in other export markets or to the firm’s cost of producing the merchandise, taking into account the firm’s selling, general, and administrative expenses, and
      profit. Finally, where the producer is located in a non-market-economy country (NME), a comparison is made between U.S. prices and its factors of production, as valued by use of a“surrogate” country. The amount by which NV exceeds the U.S. price is the “dumping margin.”A weighted average dumping margin is calculated for each producer or exporter as a percentage
      of the value of the U.S. prices of that producer or exporter.

      2. The Countervailing Duty Law
      Under the CVD law, E&C investigates complaints that foreign governments are unfairly subsidizing their industries that export to the United States. Examples of unfair subsidies are tax benefits related to exporting or government-provided low-cost loans targeted to specific companies or industries. While governments can take many actions which could be said to
      confer benefits on their producers, not all of these actions are viewed as countervailable subsidies. Generally, the benefit must be limited to a specific group of firms or industries or to a firm’s export activities in order to be covered under this law. This manual does not address countervailing duties.”

      http://ia.ita.doc.gov/admanual/2015/Chapter%2001%20Introduction.pdf

      According to the USITA decision memorandum to which Scott posted a link in a previous thread, the three largest components of the preliminary CVD duty announced last week were as follows.

      1. One Billion US $ Equity Infusion by Investissement Quebec in 2015: 147.28% ad valorem.

      2. Launch Aid by Canadian Federal Government starting in 2008: 28.99% ad valorem,

      3. Launch Aid by the UK Government starting in 2009: 17.55% ad valorem.

      • More on the difference between dumping and CVD duties, and the importance or lack thereof of the US sales price of 737-700’s or 737-7’s to antidumping duty calculations, according to the USITA. From Chapter 6 of the Antidumping Manual of the USITA Enforcement and Compliance Division, which may be found at the link after the quote.

        “In learning what dumping is, it is also important to understand what dumping is not. For example, dumping is not the sale of foreign merchandise in the United States at a price less than the price charged by U.S. producers of the same merchandise. In a dumping case, the fact that foreign producers sell their products at lower prices in the U.S. market than U.S. producers becomes relevant only in the context of the ITC’s determination of whether dumped imports have materially injured a U.S. industry.

        Also, many people tend to confuse dumping and subsidies, mistakenly seeing them as a single phenomenon. The two are, in fact, distinct – one involves the pricing behavior of individual firms, while the other stems from the decisions of governments to provide preferential assistance to exporters or specific industries. While a foreign government’s decision to provide export subsidies or to protect its domestic market may create conditions conducive to dumping, a finding of dumping will ultimately turn solely on the pricing decisions of the firm in the two markets. Other U.S. trade laws, such as the countervailing duty law, are available to address more directly the trade-distortive actions of foreign governments.”

      • If DL orders another 75 CS aircraft today will the 220% become 110% for the 150 aircraft or will it remain at 220% per aircraft?

        • Hello Anton,

          Re: “If DL orders another 75 CS aircraft today will the 220% become 110% for the 150 aircraft or will it remain at 220% per aircraft?”

          I have just skimmed through the decision memorandum. Based on what I have read and understood so far, I believe that the answer is that additional C-Series orders by Delta or anyone else would have no effect on the preliminary CVD duty decision, but I am not sure that this is the case. My current understanding is that the preliminary duties for a particular disallowed subsidy were calculated by dividing the value of the subsidy, over the ten year period from 1-1-07 to 12-31-16, by the total sales during the same ten year period of the Bombardier divisions or affiliates that benefitted from the subsidy, and that any sales that occur after December 31, 2016, to Delta or anyone else, will not change the preliminary CVD duties that have been assessed. Following are some of the statements in the Decision Memorandum that make me believe that this is the case. Page references are to the version of the memorandum that Scott posted.

          From page 4:

          C. Average Useful Life
          On June 6, and June 16, 2017, we received comments and rebuttal comments from the petitioner and Bombardier on the appropriate AUL. On June 29, and June 30, 2017, we received requests from Bombardier, the GOC, and GOQ to modify the AUL reporting period set forth in the questionnaire to 10 years. Therefore, on June 30, 2017, we issued a letter to the GOC and U.K. notifying interested parties to provide data for subsidies provided or received during the 10-year AUL period (i.e., from January 1, 2007, through December 31, 2016). See the “Allocation Period” section, below.

          From Page 5:

          A. Allocation Period
          The Department normally allocates the benefits from non-recurring subsidies over the AUL of renewable physical assets used in the production of subject merchandise. The Department finds the AUL in this proceeding to be 10 years, pursuant to 19 CFR 351.524(d)(2) and the U.S. Internal Revenue Service’s (IRS) 1977 Class Life Asset Depreciation Range System. In the Initiation Notice, the Department notified parties of an opportunity to comment on the AUL applicable to producers of aircraft. The Department received timely comments on the AUL. Ultimately, no party in this investigation disputed the 10-year AUL period.

          From page 15, at the conclusion of the section addressing the 1 Billion US $ Equity Infusion from Investissement Québec in 2015.

          CSALP = C Series Aircraft Limited Partnership (CSALP)
          POI = Period of Investigation

          “As of September 1, 2016, the equity infusion provided by Québec was fully disbursed. To calculate the benefit, we performed the 0.5 percent test by dividing the benefit received by Bombardier by CSALP’s total 2016 sales. Because the resulting ratio exceeded 0.5 percent of CSALP’s total sales, we allocated a portion of the benefit to the POI using the Department’s standard allocation formula. We used the 10-year AUL described in the “Allocation Period” section, above, when conducting the allocation calculation. Because the equity infusion was directly tied to CSALP, we used CSALP’s sales as the denominator. On this basis, we preliminarily determine the countervailable subsidy rate for Bombardier under this program to be
          147.28 percent ad valorem.”

          Here is the link that Scott provided to the decision memorandum.

          https://leehamnews-5389.kxcdn.com/wp-content/uploads/2017/09/Decision-092617.pdf

          • Thanks Again AP.

            Basically the CS100/300’s are “stuffed” in the US if all these goes through?!

  34. …and Should add to this that the ~70 DL 737-800’s are 15 years and older.

    Bringing total single aisle replacement requirements for DL in 5-10 years to ~350. This includes 65 MD9-30’s, 120 A319/320’s, 90 B717 and 70 B737-800’s.

    This excludes the replacement of 110 MD88’s which was part of the CS100 order plan.

    So is Boeing try to bully/blackmail it’s way into something like this or has it c……d in its own porridge?

  35. Meanwhile in Brazil …….

    “The World Trade Organization on Friday established a panel to investigate charges by the government of Brazil that the Bombardier C Series received improper subsidies on several levels from the province of Quebec and the Canadian federal government. The decision comes only days after the U.S. Commerce Department proposed levying a 220-percent tariff on deliveries of the new narrowbody to Delta Air Lines.

    The WTO panel results from a failure on the part of Brazil and Canada to reach a consensus during a consultation process this past March. The Brazilian authorities cited a $2.5 billion injection of provincial funds by the government in Quebec during 2016 alone and “indications” that the Canadian federal government plans soon to contribute significant capital to ensure artificially low prices for the C Series narrowbody. In all, Brazil initially claimed that Bombardier has received more than $4 billion worth of illegal subsidies. The WTO panel has agreed to examine programs worth $3 billion.”

    https://www.ainonline.com/aviation-news/air-transport/2017-09-29/wto-creates-panel-examine-c-series-behest-brazil

    • This was bubbling.

      COMAC is a Government owned company. What will Boeing and the WTO do if they sell C919’s to airline X outside China?

      Similar, if BBD sells his stake out (50.5%) in the C-series to Canadian Government bodies could the US put a CVD tariff on the aircraft?

  36. Boeing is planning to put up a 737 finishing line at a COMAC facility in China.

    ……taking jobs away for the US….

    …..COMAC a Chinese Government company…..

    Well done Boeing, the entire US and world admire your ethic’s and how you managed to pump up the share price.

    • Boeing doesn’t give a rats behind about the US and US jobs…its all about making the most short-term profit for themselves so they can pump their stock price so that Muilenberg can make $10’s of million from his options and get out of dodge before the US public figures out they have subsidized Boeing, only to see Boeing jobs exported to China and meanwhile losing all the Bombardier supply jobs that the C series was creating. Trump is just a convenient puppet that Boeing is exploiting to help jam its stock price…the risk is the US is turning Canada and the UK from allies to enemies with these clearly biased 3rd world banana republic corrupt trade rulings.

  37. @FLX

    “This is a surprising statement by AC in this trade dispute as I was expecting neutral/low profile response fm AC.”

    No, it is not surprising at all. JetBlue did the same, as well as Spirit Airlines and Sun Country Airlines.

    Aircraft operators want more competition and a better offer of products to choose from when they are looking for new airplanes. Airlines also appreciate innovation that can bring them more efficiency, lower costs and improved passenger appeal.

    https://www.bloomberg.com/news/articles/2017-09-25/jetblue-asks-u-s-to-reject-boeing-in-bombardier-trade-dispute

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