A worker inspects a CSeries wing in the Bombardier factory in Belfast, Northern Ireland, on September 26 2017. Picture: REUTERS
A worker inspects a CSeries wing in the Bombardier factory in Belfast, Northern Ireland, on September 26 2017. Picture: REUTERS

Montreal/New York — The US Commerce Department on Tuesday slapped preliminary anti-subsidy duties on Bombardier’s CSeries jets, after rival Boeing accused Canada of unfairly subsidising the aircraft.

The move is likely to strain trade relations between the neighbours, and has drawn a rebuke from Britain, which said it was "disappointed" with the decision.

It is also the second piece of bad news for Bombardier, after Siemens and Alstom announced a rail tie-up earlier on Tuesday — taking Bombardier’s possible Siemens deal off the table.

The UK Business Ministry said on Wednesday of the US duties: "Boeing’s position in this case is unjustified and frankly not what we would expect of a long-term partner to the UK — as well as damaging the wider global aerospace industry. We will continue to work closely with the Canadian government to encourage all parties to reach a credible resolution as quickly as possible."

The US Commerce Department said it had imposed a steep 219.63% countervailing duty on Bombardier’s new commercial jets after it made a preliminary finding of subsidisation.

Boeing has complained the 110- to 130-seat aircraft were dumped below cost in the US market last year while benefiting from unfair subsidies.

An April 2016 order for 75 CSeries jets from Delta Air Lines stemmed from the same harmful sales practices European rival Airbus SE employed to win business in the 1990s, according to Boeing.

The Commerce Department’s penalty against Bombardier will take effect only if the US International Trade Commission (ITC) rules in Boeing’s favour in a final decision expected in 2018.

"We strongly disagree with the Commerce Department’s preliminary decision," Bombardier said in a statement, calling the magnitude of the proposed US duty "absurd".

The announcement and accompanying fact sheet on the preliminary duty order did not provide any rationale or methodology for how it calculated the 220% duty.

The CSeries starts at $79.5m, according to list prices, but carriers usually receive discounts of about 50%.

If imposed, the duties would more than triple the cost of a CSeries aircraft sold in the US to about $61m, based on Boeing’s assertion that Delta received the planes for $19m each. Bombardier has disputed the $19m sales figure.

There are not that many US countervailing orders that are this high, but it is lower than the 256% final duties slapped on Chinese cold-rolled steel last year.

The timing is awkward because Canada and the US are in a three-way negotiation involving Mexico to modernise the North American Free Trade Agreement (Nafta).

A source familiar with the Canadian government’s thinking said the Boeing trade dispute was "separate" from the Nafta talks.

"This in no way is part of our conversation" the source said. "People should not read too much into this piece today."

The spat between Boeing and Bombardier snowballed into a bigger fight this month when British Prime Minister Theresa May asked US President Donald Trump to intervene in the dispute to help protect jobs in Northern Ireland, where Bombardier is the largest manufacturing employer.

The US has also faced opposition from a handful of American carriers and elected officials over potential US job losses.

Canadian Foreign Affairs Minister Chrystia Freeland said Bombardier CSeries components were supplied by American companies that supported almost 23,000 jobs in US states, including Connecticut, Florida and New Jersey.

"This is clearly aimed at eliminating Bombardier’s CSeries aircraft from the US market," Freeland said.

She said Canada strongly disagreed with the antidumping and countervailing duty investigations.

Boeing said in a statement that the dispute "has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements".

Bombardier was unwilling to swallow the extra cost for airlines if the US slapped duties on its CSeries jet, Reuters reported on Tuesday, citing people familiar with the matter.

"We are confident … no US manufacturer is at risk because neither Boeing nor any other US manufacturer makes any 100- to 110-seat aircraft that competes with the CS100," Delta said in a statement.

Duties could chill US sales of the fuel-efficient CSeries, raising concern about future orders and jobs in Canada and the UK.

Canadian Prime Minister Justin Trudeau had put his government’s planned purchase of Boeing Super Hornet fighter jets on hold because of the trade dispute, saying it could not "do business with a company that’s busy trying to sue us and put our aerospace workers out of business".

‘Not a slam dunk’

Boeing has argued that the military sale to the Canadian government and its petition against Bombardier are not linked.

But the US jet maker has said the CSeries would not exist without hundreds of millions of dollars in launch aid from the governments of Canada and Britain, or a $2.5bn equity infusion from the province of Quebec and its largest pension fund in 2015.

To win its case before the ITC, Boeing must prove it was harmed by Bombardier’s sales practices, despite not using one of its own jets to compete for the Delta order, Dan Pearson, a senior fellow at the libertarian Cato Institute think tank in Washington, said before Tuesday’s announcement.

"This [ITC case] cannot be a slam dunk," said Pearson, a former ITC chairman. "I’m having a hard time figuring out how Boeing was harmed by this."

Missed chance

Canada has pushed to settle the dispute. But one industry source said Boeing, which could gain some leverage with the Commerce Department’s initial decision in its favour, sees the possible CSeries dumping as a long-term threat to its civilian airliner business.

Bombardier stock has fallen about 15% over the past month on uncertainty around the duties and a rail venture.

On Tuesday, Bombardier missed out an opportunity to strike a rail deal with Siemens, when the German company decided to combine its rail operations with French group Alstom.

Reuters

Please sign in or register to comment.