Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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- Better transparency needed on Boeing’s 1Q earnings call April 22, 2024
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- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
Boeing, Bombardier, Delta square off in new round of C Series trade dispute
Rob Dewer, VP of the C Series program, testified at the US International Trade Commission, Dec. 18 in the trade dispute following Boeing’s complaint.
Dec. 18, 2017: Boeing, Bombardier and Delta Air Lines squared off today in the new round of the trade dispute over Boeing claims BBD “dumped” the CS100 in an order with Delta Air Lines in 2016 in violation of anti-dumping and illegal subsidy laws.
The US Department of Commerce this fall, in a preliminary decision, ruled that a 300% set of tariffs should be levied on importation of the C Series. A final decision is due this week or next.
Delta was originally due to take delivery of the first of 75 orders next year. This has been postponed. Since the case started, BBD and Airbus struck a deal in which Airbus takes a 50.01% ownership stake in the C Series program. Bombardier plans to build a final assembly line in Mobile (AL), next to the Airbus A320 FAL, to deliver all aircraft ordered by US carriers from a US FAL.
US ITC
Even as Commerce was set to finalize its order, testimony was given today before the US International Trade Commission (ITC), which must judge whether “harm” was done to Boeing by the Delta deal and one Boeing won, United Airlines.
LNC is linking briefs filed with the ITC below. Additionally, Boeing and Bombardier provided information to LNC and these links are also below. LNC asked for copies of testimony by two Delta executives. If received, these will also be linked.
Selected news articles from today by media on site are also linked.
Briefs
Boeing: Boeing Brief 121317 and presentation: Boeing ITC presentation
Bombardier: BBD Brief 121317 and presentation BBD ITC presentation
Staff Report: Staff Reprt 121117
Testimony:
Bombardier: Dewar Dewar Statement — ITC Final Hearing; Levesque: Levesque Statement – ITC Final Hearing; Mitchell: Mitchell Statement – ITC Final Hearing
Ascend: re: MAX: Dimitroff: Click link here.
News
- Aviation Week: Boeing cannot, will not stop complaint
- Bloomberg: 737-7 at ‘extreme risk, may not survive’
- Financial Post: Boeing win would disrupt Canada’s aerospace industry
- New York Times: Trade complaint could complicate NAFTA
- Reuters: Trade dispute heats up at hearing
Schedule:
| 12/18/2017 9:30 am: Hearing | 12/27/2017: Posthearing Briefs | 01/12/2018: Report to the Commission | 01/19/2018: Record Closing | 01/23/2018: Final Comments | 01/25/2018: Proposed Vote | 02/09/2018: Determination(s) Issued | 02/09/2018: View(s) Issued | 02/09/2018: End |
Hello Mr. Hamilton,
Your subscribers probably come here for many different reasons. As someone who is interested in hearing all sides of this case and other commercial aviation news events and considering them with an open mind, rather than interested in cheering on my team and gathering new dirt on the other team, I commend you on what I consider to be an excellent post, above and beyond what I have come to expect, in that it provides links to the public documents detailing the arguments of both side so that I can read them and decide for myself.
You even got the purpose and scope of today’s hearing, i.e. solely the issue of material injury right, which is somewhat rare in the popular press.
Thanks, Robert. I’ve been impressed with the amount of research you do, especially considering you are not part of the industry.
The whole Boeing spin is about C-Series is a 100-150 seat and a 737-7 or MAX7 having 138 seats but neglecting to mention explicitly that the 737 range is up to 250 seats (see “Boeing ITC presentation” PDF page 18).
Boeing then claims the 7 to have some virtues like more range than the other aircraft of its 737 series. Not every customer does need such performance. Does Boeing offer a long range 138 seat aircraft (nearly 4,000 nm) while the C-Series is a medium range aircraft (3,000nm)? So it is not only about seats but also about range. Boeing does not offer a competing product in the specific seat and range segment.
You mention the B737, but on witch C Series are you talking about? CS100 or CS300?
For your information the 737-7 has a minimum of 110 seats, not 138. Only 1 seat more than the Bombardier, so they can certainly claim that they can compete with the C- Series. This fact, however, does not seem to register with enough people (especially Canadians and Europeans). One seat difference can’t be considered significant.
Every plane competes with every plane as capacity can be tweaked by frequency and range by stops and connections (until you have to cross an ocean at least). But saying BBD does harm to Boeing is the same as saying competition does harm to Boeing. Can the US actually put a higher tariff on a product that is completed in the USA (CS) that has higher US content then the 787? That will make for some interesting trade litigation. Imagine if Canada is force to challange though Chapter 19 panels and as a result BBD is forced to ship only Canadian built CS to USA and as a result end up shiping US built CS to Air Canada.. oh the insanity!!!
Hello Mark from Toronto,
Regarding – “Can the US actually put a higher tariff on a product that is completed in the USA (CS) that has higher US content then the 787?”
What non-US content percentages are you assuming for the 787 and C-Series? By weight, volume, or fabrication or purchase price? What is the source for your non-US content data?
The only non-US content percentages I have ever seen for the 787 from sources who I thought were in a position to actually know were about 30%. See below for three such sources. Do you believe that the non US content for the C-Series is less than 30%?
The following quote from a 2011 Los Angeles Times story about 787 production woes cites the Boeing engineering union (SPEEA) as stating that 787 foreign content was about 30%, that this was more than for any other Boeing made plane, and that the foreign content of the 747 at that time was about 5%. See the link after the quote for the full article.
“The 787 has more foreign-made content — 30% — than any other Boeing plane, according to the Society of Professional Engineering Employees in Aerospace, the union representing Boeing engineers. That compares with just over 5% in the company’s workhorse 747 airliner.”
http://articles.latimes.com/2011/feb/15/business/la-fi-hiltzik-20110215
The following quote from a Boeing webpage at the link after the quote states that in 2012, the percentage of parts and assemblies purchased by Boeing from non-US suppliers was approximately 25% for all of Boeing projects and 30% for the 787.
“In 2012, Boeing purchased approximately 75 percent of its supplier content from U.S. companies. On the 787 program, content from non-U.S. suppliers accounts for about 30 percent of purchased parts and assemblies.”
http://787updates.newairplane.com/787-Suppliers/World-Class-Supplier-Quality
Following is a quote from a 2013 SPEEA press release protesting the reduction of domestic content requirements from 85% for certain types of Export-Import Bank financing, which states that the 787 is the first Boeing airplane with more than 30% foreign content. See the link after the quote for the full press release.
“However, the 787 is the first Boeing aircraft to include more than 30% foreign content in its basic configuration. It is imperative for our members that U.S. policies discourage increased foreign outsourcing and encourage U.S. job creation.”
http://www.ifpte.org/downloads/issues/LW2013_SPEEAEx-ImBank%20Position%20Paper13.pdf
Various definitions of foreign content are possible, for instance, by weight, by volume, or by purchase price. I believe that the definition that Boeing and SPEEA are using is part or sub assembly purchase price, which means that a small expensive computer would count for more than a large inexpensive airframe part.
The only thing that would really matter in trade is input costs , i.e dollar value. At this point Boeing claims 70% of the PARTS COUNT is US sourced and has declined to provide $ value break downs. As you can see some pretty big parts come from outside the us:
http://www.businessinsider.com/graphic-boeing-787-dreamliner-suppliers-2013-1
I suppose it ultimately comes down to if the plane is equipped with RR or GE engines. Cseries is now at over 50% US content. I think AL assembly will increase this by at least 15-20%
Well what we can state is the following parts are non US sourced.
I think value is the correct metric. 1000 low cost fasteners vs a fuselage section that has 1000 parts is ????? Is a roll of tape one part or is each roll of tape a part?
Wings: Japan. Not a clue what the part count is,
Wingbox: Japan
Fuselage between Wingbox and section 42: Japan.
Fuselage middle: Italy.
Horizontal Tail Planes: Italy.
Nacelles: Canada
Nose gear: UK (rest? )
Batteries: Japan (grin)
Seems like a lot more than 30% value.
ENGINES: GE (about 60%) or RR
Hello TransWorld,
Here are US sourced systems to add to your list of mainly structural parts.
Rockwell Collins (COL): Communications and pilot control systems.
Honeywell (HON): Navigation systems and flight control electronics.
If economists are involved, I think it is doubtful that the criteria is percentage of parts rather than sub assembly purchase price or cost to complete build to a certain percentage of build. For instance, if economists were calculating the cost or value of the electrical system in a house, I would expect them to add up the bills paid to the electrical contractors who did the work, rather than add up the value of the raw supplies (wire, electrical sockets) used in the work, or do any calculations involving percentages of parts on a part list. In such an analysis, a completed airworthy fuselage has a much higher value than the components used to assemble it (rivets, metal panels, or fuselage barrels, resin, and fiber cloth). The people who do the assembling in giant factories do not work for free.
My interpretation of the following sentence in one of the sources I linked to above was that 30% of the dollar value of purchased 787 parts and assemblies was non-US, Others apparently are reading it to mean that 30% of the number of parts count is non-US. I doubt that parts count is the criteria being used if the computation was done by MBA’s or economists.
“On the 787 program, content from non-U.S. suppliers accounts for about 30 percent of purchased parts and assemblies.”
http://787updates.newairplane.com/787-Suppliers/World-Class-Supplier-Quality
When it comes to the Export-Import Bank whose policies were being referenced in a Boeing engineering union press release that I provided a link to that cites a 30% non-US content for the 787, I don’t think that there is any ambiguity that the criteria being used is value in dollars, not parts count. The quote is from the Export Import Bank website at the link after the quote.
“The total level of support for a export contract will be the lesser of:
•85% of the value of all eligible goods and services in the U.S. export contract; or
•100% of the U.S. content in all eligible goods and services in the U.S. export contract.”
https://www.exim.gov/policies/content/medium-and-long-term
“Boeing claims 70% of the PARTS COUNT is US sourced.”
All those home depot washers, nuts and bolts 😉 SCNR!
Ignore the bad joke. But do think about what items really come up in numbers on an airframe. fasteners.
Alcoa is a US corp.: https://en.wikipedia.org/wiki/Alcoa
A lot of Titanium is used and that is (mostly I believe ) Russian sourced.
Processing is US, value added as it were.
Whatever. but Boeing was talking about Parts Count
The, titanium stock may be from RU but nonetheless
would Boeing attribute it as US content if it is processed in the US in any way.
If I understand this correctly – if the ITC does not rule in Boeing’s favor the 300% tariff’s disappear or is this about additional penalties on top of the 300% tarrif?
Also I note from the Aviation week article that Boeing could not withdraw it’s complaint even if it wanted to which explain’s the Delta A321 decision last week. That bargaining chip wasn’t available to them.
It appears that the ITC will not rule on tariff’s if CS100/300 assembled in Alabama so it looks like a huge cloud over the program which will continue to hurt sales to U.S. carriers for the foreseeable future.
If the United States proceeds with these obscene tariff’s this will result in an all out trade war with Canada. Of course Canada will be hurt the most but so will millions of American’s workers and for what? Canada is the U.S.’s best trading partner by far in fact the U.S. enjoy’s a $12 BILLION surplus in the trade of goods and services with Canada and the new “America First” administration wants to destroy this? So much for being good neighbors!
Hello Kevin,
Regarding – “If I understand this correctly – if the ITC does not rule in Boeing’s favor the 300% tariff’s disappear or is this about additional penalties on top of the 300% tarrif?”
See the excerpt below from a USITC FAQ page which may be found at the link after the excerpt.
“What are the roles of Commerce and USITC during antidumping and countervailing duty investigations?
Commerce determines whether the alleged dumping or subsidizing is occurring, and if so, the margin of dumping or amount of subsidy.
The USITC determines whether the U.S. industry is materially injured or threatened with material injury by reason of the imports under investigation.
If both Commerce and the USITC reach affirmative final determinations on their individual questions, then Commerce will issue an antidumping duty order to offset the dumping or a countervailing duty order to offset the subsidy.”
https://www.usitc.gov/faqs/import_injury_faqs.htm
The final phases of the Commerce and USITC investigations are presently proceeding simultaneously and are both scheduled to conclude on 2-9-18.
Thanks for the reply AP!
The US Commerce Department has announced its final decision on the issue of whether C-Series aircraft are or are about to be dumped in the US, or have received disallowed subsidies. It affirmed, at least to within a few percent, the preliminary determination it had previously reached. See the US Commerce press release at the link below. According to this press release the USITC decision on whether Boeing is being materially injured by dumping or disallowed subsidies is not due until 2-1-18.
https://www.commerce.gov/sites/commerce.gov/files/fact_sheet_commerce_finds_dumping_and_subsidization_of_imports_of_100-_to_150-seat_large_civil_aircraft_from_canada.pdf
Great, balanced reporting. What we come to expect from this site.
The BBM slidepack – page 9, where Boeing indicates that the C-Series is not in the same market as the 737, is very revealing. In a fair hearing, that one statement would be the end of the saga.
Painful for Boeing is especially page 31 of BBD presentation: nearly half of all A320 delivered are A321 while Boeing was not able to expand the 737 much beyond the 800/8.
Page 34 is also revealing. MAX-Series starts with maximum seating capacity of 170 with MAX7 while C-Series ends at 160 seats with CS300. Wasn’t the case about the CS100 with max 130 seats?
As I understand it the ITC see little or no merit in the case itself. This is more of a case that they see their nose as having been put out of joint by the lack of cooperation by BBD. Boeing are clutching a pair of twos and hoping for a miracle. Perhaps Airbus can step in and push the Cseries globally and completely ignore this relatively parochial argument. In the wider scheme Airbus/BBD do not have many aircraft to shift in the near future and a couple of big orders will make the programme well to 2021. By that time the stance of Boeing can be played against them sufficiently for all of this to go away.
I have yet to hear if the action of Commerce can be challenged in court (If ITC agrees with them) if not, I gather its off the table.
Binary situation, it will go on or it won’t.
Then the real issue is did the two departments follow procedures correctly or not and is that chalangeable in the courts?
Hello TransWorld,
For NAFTA signatories (US has not withdrawn yet when I checked a few minutes ago) final determinations by Commerce/USITA (dumping and subsidies) or USITC (material injury) may be appealed to the US Court of International Trade or a NAFTA panel. The only issue subject to appeal is if the laws of the country that handled the case were followed. See the excerpt below from the Wikipedia article on the Court of International trade.
“The Court possesses limited subject matter jurisdiction, meaning that it may hear only cases involving particular international trade and customs law questions. For example, the Court hears disputes such as those involving protests filed with U.S. Customs and Border Protection, decisions regarding Trade Adjustment Assistance by the United States Department of Labor or United States Department of Agriculture, customs broker licensing, and disputes relating to determinations made by the United States International Trade Commission and the Department of Commerce’s International Trade Administration regarding anti-dumping and countervailing duties.
There is one notable exception to the Court’s jurisdiction. In cases involving antidumping and countervailing duties imposed on Canadian or Mexican merchandise, an interested party can request that the case be heard before a special ad hoc binational panel organized under Chapter 19 of the 1994 North American Free Trade Agreement.”
https://en.wikipedia.org/wiki/United_States_Court_of_International_Trade
Thank you,
Its been done before but I went back and counted up the 737-7 orders.
Severely endangered without the C Series.
Just kind of running down the fallacies.
Noting that West-jet (yea Canada) has 23 on order, SW has the rest and no others.
SW seating is much closer to 150 than not. No seating is under 130.
Boeing makes two huge whoppe does.
One that aircraft commonality is a big issue in commerce.
True enough, it helps to have a common fleet but as we have seen, SW, AK are exemptions, others like Delta have quite an eclectic fleet and others have Airbus and Boeing single aisles. Neither fish nor foul from what I can see.
Boeing apparently happily competed in Canada with Westjet (who went with a single mfg fleet).
The 737-700 is going out of production and should have zero relevance.
And then the huge whopped do about how costly it is to switch between aircraft types with the production and mfg.
Really. So Boeing sells all those 700s to United who then hoses up the works by going with Max 8?
That is spurious. People move and trad slots and types a lot and usually they move up.
Previous 700 has significant orders (1200) , now, no.
I would call it market abandonment.
“Our Max 7 is at extreme risk,” Kevin McAllister, the head of Boeing’s commercial airplanes division, told a panel at the U.S. International Trade Commission during a daylong hearing Monday.
LOL, we can only hope. Please put it, and us (the passengers), out of our misery.
Not sure I think its worse than any other packed aircraft, but at risk, all of 58 orders?
Me thinks lack of addressing the market has pulled the risk rug out from under it. Its sales free and proud.
If I remember correctly Boeing did exactly the same to keep out Bombardier, 75% discount.
But that has nothing to do with it, because this was United not Delta & Boeing is not a foreign company.
http://www.businessinsider.com/boeing-took-some-extraordinary-measures-to-crush-its-canadian-opposition-2016-3?international=true&r=US&IR=T
This kind of behavior seriously hits Boeing brand credibility & again puts their ethics realities in doubts. No expensive lawyer / unscrupulous communication professional is preventing that.
On the 787 foreign content issue, the Nippon Export Investment and Insurance company contributes the Japanese portion to the US Exim bank coverage for the 787. When US Exim supported the first 787 financing to Ethiopian Airlines in 2012, NEXI issued the following press release:
http://nexi.go.jp/en/topics/newsrelease/004498.html
The extract below mentions 35% of airframe structure and mentions other items coming from Japan. A Trent 1000 powered 787 probably has inputs over 40% coming from Japan, and probably above that percentage if the seats and galleys come from JAMCO.
QUOTE
Japanese companies participated as partners in the joint development and production program of the Boeing 787 aircraft. They are in charge of wing box, forward fuselage and center wing box etc, and their work share is about 35% of the airframe structure. Additionally, the Boeing 787 aircraft including the engine contains many other Japanese contents such as carbon fiber composite material, tires, lavatories, galleys and cabin service systems.
UNQUOTE
Phew, something I had forgot was the CFRP rolls at one time were ALL Japan sourced.
Toray?) They have a factory in Washington State now.
Lets add in a zinger
Whats the content of the Buildings and equipment used to build the 787?>
That is another snootfull of cost and stuff.