Summary: Like any other industry, competition gives way to acquisition and consolidation and aerospace manufacturing is no different. McDonnell-Douglas is now Boeing and CASA is now Airbus. But events over the past 15 months have served up a story somewhat off the spectrum: a “perfect storm” of political, trade, and economic divergence between Boeing and Bombardier and at its eye, Bombardier’s CSeries programme.
Boeing’s criticism of the programme escalated early in 2017, with claims that the financial support Bombardier received for the programme from the Quebec government is illegal. Following the announcement of a key sale (c.US$5bn) to Delta at substantial discounts in its home market, the Chicago based manufacturer in April 2017 requested the U.S. Department of Commerce to investigate, knowing an imposition of equalising duties on sales of the aircraft to be a likely outcome.
Boeing’s gripe has been that the programme is forcing it to lower its prices and threaten its own future prospects. Specifically, it views the CSeries as competing within the same product segment as its own 737 Max. But the CSeries is different to the 737 Max in many ways, not least for its 5 abreast cabin interior, cost-busting and efficiently geared turbofan engines, and comparatively low weight. Most industry analysts are not convinced they share the segment. Interestingly, JetBlue, which operates neither Boeing nor Bombardier product, has voiced its concerns as to Boeing’s action. It asserts that competition between Airbus and Boeing has driven innovation in the larger market segment for the benefit of the flying public, and that the same should apply to the CSeries segment. Specific CSeries duties would benefit Embraer and not Boeing, with the effect of reducing competition and product innovation.
Meanwhile and closer to home, Theresa May leads a government seeking to rapidly build out trade relationships with Canada and the U.S. Her Conservative Party languish from an electoral hiding in June, relying on the Democratic Unionist Party ("DUP") for support in government. Amongst the DUP’s constituents are 4,500 Bombardier employees who manufacture the wing component for the programme. When the U.S. Commerce Department’s preliminary ruling was released, it impacted not just the viability of the programme but also May’s government. It stated the Quebec money should be counteracted by anti-dumping and anti-subsidy duties of as much as 300 per cent. The Americans, traditionally known as peacemakers in Belfast, in 2017, brought their dispute to Lagan-side.
Enter white knight Airbus, which acquired 50.1 per cent of the CSeries programme in October. The CSeries can now benefit from excellent supply chain economies at Airbus’ new Mobile Alabama plant, which has been producing the A320 family aircraft. Not only that, the acquisition was also potentially tariff busting and proposed an import “solution”, seen as key for the Delta order. Like other Bombardier products, the CSeries can be delivered within the U.S. (Bombardier use a Connecticut delivery centre for corporate jets) at the Mobile facility. But December brought bad tidings, notwithstanding a headline order from EgyptAir. The U.S. Commerce Department reached a final determination, in Boeing’s favour. It set slightly lower duties of c.292 per cent, which applied irrespective of the delivery centre location. In response Bombardier’s turned to the International Trade Commission ("ITC") for a ruling.
2018 started well for Bombardier. In January, to the delight of those with an interest in the CSeries programme, the ITC unanimously voted to reject the U.S. Commerce Department proposed duties. In March Boeing confirmed that it will not be appealing the ITC decision.
It is fair to say that protectionism has outplayed globalisation over the past year. The CSeries dispute coincided and played into President Trump’s politicisation of trade, and vice versa. The ITC decision and Boeing’s reaction to has caused Belfast, Downing St., Montreal and Alabama to breathe a collective sigh of relief, but the far reaching effects of the CSeries programme cannot be underestimated.