Oct. 3, 2017, © Leeham Co.: The other shoe in the Boeing-Bombardier trade complaint is to drop Wednesday when the US Department of Commerce makes its decision whether Boeing suffered harm, or there is a threat of harm, in the CS100 order by Delta Air Lines.
The DOC last week determined that Bombardier received illegal subsidies dating to the 2008 program launch of the CSeries, through the 2016 equity investments by the provincial government of Quebec and the federal government of Canada. Certain tax breaks were also deemed illegal subsidies by the DOC.
The determination was expected, even by Bombardier. But the DOC shocked the global aviation community by levying a 220% tariff. The rate is preliminary and won’t be finalized until next year, but absent some extraordinary event, it’s expected to be confirmed—followed by lengthy appeals.
The decision Wednesday relates to harm, or anti-dumping in legal terms. Here’s where the aviation community and observers, except for one who is prominent and who receives funding from Boeing, universally believe there is no case.
The Bombardier case relating to harm is in sharp contrast to the US-European Union trade battle over subsidies and launch aid between Boeing and Airbus before the World Trade Organization.
While the subsidies portion in the Bombardier and Airbus cases read like chapters out of the same book, there are sharp differences over “harm.”
Airbus and Boeing compete head-to-head in every airplane category. Observers debated the amounts of harm claimed by Airbus and Boeing in the respective US-EU complaints, but there was no disputing harm of some level occurred.
Contrast this with universal condemnation (except for the consultant who benefits from Boeing grants) of the Boeing claims that it is harmed and Bombardier threatens to put Boeing and the entire US aerospace industry out of business unless punished.
Boeing and Bombardier don’t compete at all in the 100-125 seat sector, which is at stake with the CS100 order by Delta in the current trade complaint.
The CS100, in Delta’s two-class configuration of 109-seats, doesn’t even match Boeing’s own “Single Aisle” description of its new Current Market Outlook; this begins at 110-seats. (Below this is Boeing’s definition for regional aircraft.)
Boeing didn’t offer an airplane to Delta that competed with the CS100. It doesn’t build an airplane that competes with the CS100.
Boeing does, however, offer the 737-700 and 737-7 MAX. Bombardier offers the directly competitive CS300, for which Delta has options. There is occasional talk of BBD offering an even larger CS500 that would be the same size as the 737-800 and 737-8.
It is this on which Boeing lays claim to harm. If Delta exercises options for the CS300, this airplane will kill the 737-700 and 7 MAX. If Bombardier builds the CS500, it will kill the 737-800 and 737-8 MAX. With it, Boeing will be brought down and with it, the US aerospace industry, Boeing claims.
Observers, including LNC, see these arguments as preposterous.
The 737-700 and 737-800 will cease production by 2019 because these are superseded by the MAX. This has nothing to do with the CSeries.
The MAX 7, even after redesign to add 12 more seats (and which makes it closely competitive with the smaller-capacity CS300, according to LNC’s analysis), is a niche airplane for hot-and-high and difficult airports. Airlines clearly prefer the larger MAX 8, MAX 9 and now the MAX 10. The MAX 8 is the preferred airplane but even the less desirable MAX 9/10 have each outsold the MAX 7.
Suggesting Bombardier will develop a CS500 is, at this point, theoretical.
With Boeing not building a 100-125-seat aircraft or competing in the Delta bid, where is the harm that Bombardier won this order?
With the 737-700 and 737-800 being superseded by Boeing’s own MAX product line, where’s the harm from CSeries?
With the market already having voted with its checkbook on the MAX 7 for larger MAX airplanes, it’s difficult to make a case Boeing that the MAX 7 is harmed by the CS300.
With the CS500 being little more than a fanciful Internet wish, an airplane that doesn’t exist, where’s the harm?
This is where very objective observer and nearly all industry experts believe Boeing has no case.
Despite this universal, independent conclusion, it seems almost certain the DOC will conclude there is harm or a threat of harm and find for Boeing. This view is reinforced by the shocking 220% tariff the DOC levied in the subsidies case.
This is the decision expected Wednesday. If the process of the subsidies case is followed, the decision may not be made public until Thursday.