US Commerce confirms tariff on C Series; parties await ‘harm’ determination

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Introduction

Analysis

Dec. 21, 2017, © Leeham Co.: To absolutely no surprise, the US Department of Commerce yesterday confirmed its preliminary finding that the Bombardier C Series is illegally subsidized and the company illegally “price dumped” the airplane into the US with the 2016 order for 75+50 to Delta Air Lines.

Bombardier told the trade commission this is a “partially assembled” aircraft: it has no interior, IFE, etc. It flies but it’s not a completed aircraft. Photo via Google images.

The DOC confirmed its proposed tariffs of nearly 300% on every aircraft or “partially assembled” aircraft.

The confirmation came the day after Boeing, Bombardier, Delta and other interested parties testified before the US International Trade Commission (ITC) over whether Boeing was harmed by the Delta deal and one with United Airlines that Boeing won.

If the ITC determines there was “harm” to Boeing, the tariffs go into effect upon importation. If the ITC finds no harm, the DOC’s case becomes moot and no tariff is imposed.

When Bombardier ships its wings from the Belfast plant to Canada–or to the US, once the Alabama plant is completed–does this qualify as a “partially completed” aircraft? Nobody at this stage knows. Artwork via Google images.

As LNC reported yesterday, Bombardier said its proposed final assembly line in Alabama will proceed regardless of the ITC ruling. BBD claims this FAL means the C Series becomes a US-produced product, immune to tariffs. Boeing claims the FAL’s purpose is to circumvent the tariffs and a circumvention tariff should be levied in that case.

Summary
  • This case is “uncharted territory,” says a trade lawyer.
  • What’s the definition of a “partially assembled” aircraft?
  • Appeals expected on ITC outcome.
  • Bombardier’s “fatal error.”

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Alabama plant goes ahead regardless of outcome in trade case, says Bombardier

Dec. 19, 2017, © Leeham Co.: Bombardier will build a C Series final assembly line (FAL) regardless of the ruling from the US International Trade Commission on whether Boeing was harmed by the order from Delta Air Lines for 75 CS100s and options for 50 more.

This is what Bombardier officials told the ITC, under sworn testimony, in the “harm” hearing Monday, according to a transcript.

Boeing officials argued that the plans for a US FAL at Mobile was a feint and that the line wouldn’t be built, claiming it doesn’t make economic sense.

Delta, for its part, said it’s negotiating a contract revision with Bombardier to accept deliveries assembled only from the Mobile plant.

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Assessing the Delta-Airbus order

In an event timely to the Delta Air Lines order for 100+100 Airbus A3231neos, the airline just took delivery of the 50th A320 family member to be delivered from the Airbus Mobile (AL) plant. Source: Airbus.

By Scott Hamilton

Analysis

By Scott Hamilton

Dec. 15, 2017, © Leeham Co.: Was the choice by Delta Air Lines the big “blow” to Boeing many in the media are making it out to be?

It was a PR blow, yes. Even this was limited to those in the know.

But it wasn’t a material blow by any stretch.

Here’s why the hand-wringers are wrong.

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Delta Airbus deal means Bombardier trade complaint continues

Dec. 13, 2017, © Leeham Co.: Delta Air Lines chose to place its long-awaited order for the re-engined single-aisle airplanes with Airbus for the A321neo, powered by Pratt & Whitney GTF engines, according to an exclusive report from CNN’s Jon Ostrower.

The Delta Board of Directors was expected to decide today, announcing its decision either today or tomorrow at the investors’ day event.

If confirmed, the deal is a major loss for Boeing, which hoped to sell the 737-10 MAX to Delta. A win would have been a huge boost for the MAX 10.

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Pontifications: Countdown to Delta’s single-aisle decision

By Scott Hamilton

Dec. 11, 2017, © Leeham Co.: Eyes will watch Atlanta (GA) this week, when the Delta Air Lines Board of Directors decides to award a big order for the re-engined Airbus and Boeing single aisle airplanes.

The Board meeting is believed to be Thursday. At stake: 100 orders and 100 options for either the Airbus A320neo or Boeing 737 MAX families.

I wrote about this last week. Here’s an update.

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Pontifications: Delta’s decision on neo vs MAX near

By Scott Hamilton

Dec. 4, 2017, © Leeham Co.: The Delta Air Lines management decision for an order for 100 Airbus A321neos or Boeing 737 MAXes, plus an equal number of options, is expected this week. A decision by the Board of Directors is expected next week.

Competition between the two companies was heated. Commercial terms were aggressive. Airbus and Boeing each want this deal badly. An Airbus win speaks for itself. For Boeing, a MAX order would give a boost to the MAX 10. A blocking move on Airbus is desired. For Boeing, a win would be especially meaningful.

Relations between Boeing and Delta are notoriously strained. These were exacerbated by Boeing’s complaint with the US government over the Bombardier C Series order, in which Boeing alleged price dumping and illegal subsidies. To no surprise, the Trump-led Department of Commerce found in favor of Boeing on both.

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Pontifications: EU weighs in for Bombardier in Boeing trade fight

By Scott Hamilton

Nov. 20, 2017, © Leeham Co.: The European Union is now getting involved in the Boeing-Bombardier trade dispute. See here and here.

The EU has taken Bombardier’s side. Although the UK previously weighed in with BBD because the wings are produced in Northern Ireland, the EU hadn’t become involved. Now it has, filing briefs with the US Department of Commerce.

Why now?

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Egyptair signs for up to 24 CS300s at Dubai Air Show

Nov. 14, 2017, © Leeham Co.: Despite the problems in the US over the Boeing trade complaint, or perhaps because of the resulting tie-up with Airbus, Bombardier has since landed two important deals for its C Series.

The first was an LOI for up to 61 (31 firm 30 option) from an unidentified European operator. Based on the announced list value, these are believed to be CS100s.

The latest comes from today’s Dubai Air Show from Egyptair, which announced an LOI for 24 (12+12) CS300s. Delivery dates weren’t announced.

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Analyst: Airbus could eventually terminate CSeries program

Nov. 7, 2017, © Leeham Co.: The Bombardier CSeries may go the way of the McDonnell Douglas MD-95, a Wall Street aerospace analyst suggests: that is, the program is likely to remain unprofitable and be shut down.

Doug Harned, the analyst for Bernstein Research, draws a parallel between Airbus’ acquisition of a majority stake in the CSeries program and Boeing’s 1997 acquisition of McDonnell Douglas in which the MD-95 joined the Boeing family of airplanes.

The 110-seat MD-95 was renamed the Boeing 717. Boeing attempted to market the airplane, without success. Production was terminated after 156 airplanes were built.

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CSeries effect on Airbus, Boeing product strategies

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Introduction

Nov. 6, 2017, © Leeham Co.: Boeing took a pass on assuming ownership of the Bombardier CSeries, according to a report in the Toronto Globe and Mail—the same deal rival Airbus took.

In doing so, Boeing passed on acquiring a new airplane program at pretty much zero risk, no cash investment and no research-and-development cost. The market demand ranges from 4,000 to 6,000, depending on whose study you believe.

Rival Airbus wouldn’t have a response and, given its current turmoil, would have been unlikely to pursue a response.

Instead, Boeing may embark on a risky, high-cost development of the New Midrange Aircraft for which market demand remains a controversy, suppliers are reluctant to take risk-sharing positions and which will almost certainly provoke a response from Airbus.

Artist concept of Boeing 797-7. Source: fs2000.org.

Summary
  • Boeing says it’s not worried about Airbus stake in CSeries program; it remains satisfied with its product strategy.
  • But 100-160 seat sector won’t be covered by a 737 replacement. Airbus has this covered with CSeries.
  • New Midmarket Airplane figures into CSeries impact.

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