Jan. 20, 2018, © Leeham Co.: The US aircraft manufacturer claims the foreign company is unfairly subsidized, undercutting pricing in US sales and threatening its future. A trade complaint is filed.
A prominent politician lines up on behalf of its constituent industries, claiming unfair competition. He calls for a trade investigation.
No, it’s not Boeing vs. Airbus.
It’s not even Boeing vs. Bombardier.
The complaints were against Embraer, twice.
Once in 1982 and again in 2010. In both cases, the US International Trade Commission was involved.
The rhetoric is remarkably consistent with the Boeing-Bombardier trade case.
In both Embraer cases, the ITC dismissed the complaints.
Its decision in the Bombardier case will take a preliminary vote next week, absent a schedule change, and a final decision will be issued Feb. 9.
The 1982 trade case involved Fairchild Swearingen, which at the time produced the Metro turboprop series of aircraft. These carried 19 passengers and were pressurized. They were ear-splitting in noise for the passengers. SkyWest Airlines, which operated the type for years, made ear plugs available for passengers.
The airplane entered service in 1972; more than 600 of all sub-types were made. Production ceased in 2001.
Embraer offered the competing Bandeirante, an unpressurized aircraft of otherwise similar specifications to the Metro. The “Bandit,” as the plane was commonly known, saw 501 sales. It entered service in 1973; production ceased kin 1990. It could seat up to 21 passengers, as did the last model of the Metroliner. Both usually operated with no more than 19 passengers to avoid requiring a flight attendant.
Looking back at news articles at the time (I couldn’t find the documents from 1982 on the ITC website), it’s remarkable how similar the language was then compared with today’s Boeing-Bombardier complaint. (Updated: Thanks to a reader, the document may be found here.)
It’s also surprising, given today’s “America First” environment, that the US Ambassador to Brazil told the Brazilian government he doubted the ITC would find for Fairchild and levy tariffs on the Bandit.
Embraer was then 51% owned by the Brazilian government. Fairchild claimed unfair subsidies funded 44% of the Bandit’s development, allowing Embraer to underprice Fairchild in the US. Fairchild claimed loss of market share and job losses.
In a news article from the period, the lawyer for Embraer called Fairchild’s claim that Embraer was responsible for the loss of market share “an excess of zeal.” The article, in an indirect quote of the EMB attorney, wrote, “There can be no damage to Fairchild from an airplane of different specifications.” The difference: the Metro was pressurized and the Bandit was not. Pressurization adds to the cost of an airplane.
This contrasts to the larger differences between the Bombardier CS100 and Boeing 737-7 that are the key airplanes in the Boeing-Bombardier trade case.
The president of Embraer at the time, Osires Silva, was quoted directly in the news article: “The regional air market is filled by foreign manufacturers because US companies did not have the vision to fill this gap.”
Sound familiar? This is what Bombardier says about Boeing.
Embraer planned to argue Fairchild received subsidies from the US Department of Defense for research and development, which migrated over to the civil transports.
Sound familiar? It’s what Airbus claimed about Boeing in the WTO trade case.
Embraer also argued that it would be a “legal absurdity” for the US to impose tariffs because 54% of the Bandit’s components were US-made.
Sound familiar? It’s what Bombardier argues about the C Series, for which 52% of the components are from the US. (This will go up by about 5%, in LNC’s estimate, if the proposed Mobile (AL) final assembly line for the C Series is built.)
The ITC rejected Fairchild’s complaint.
It’s hard to see how the ITC can uphold the Boeing complaint, given the facts and precedent, but it’s considered likely that it will.
In 2010, then-US Sen. Sam Brownback of Kansas called upon the ITC to do a study of the global business jet market, claiming Embraer received unfair government support to compete with US-made business jets.
His corporate constituents then included Cessna and Hawker Beechcraft, makers of business jets. Bombardier also produced the Lear Jet in Kansas.
Brownback claimed 13,000 Kansas residents lost jobs making bizjets because of alleged illegal Brazilian subsidies to Embraer.
The ITC’s 250-page report may be found here.
The study period was from 2006-2010. This encompassed the start of the Great Recession of 2008, during which bizjet sales (and commercial airline and aircraft orders) were hit hard. A major decline in sales, affecting Brownback’s state, was the lack of financing and credit during the Great Recession.
The lieutenant governor of Florida testified before the ITC in 2011 that Embraer had made a “substantial” investment in the state, where its corporate aircraft have major operations. She testified that the US was EMB’s largest supplier base—an argument that is used by Bombardier in the current trade case.
Despite Brownback’s charges, the ITC concluded that the affects of the Recession depressed bizjet sales and cost US jobs, not illegal subsidies to Embraer.