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 2017 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 the year, which has continuously claimed the financial support Bombardier received for it 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 moved to request the U.S. Department of Commerce 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 is released, it impacts not just the viability of the programme but also May’s government. It states 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, have in 2017 brought their dispute to Lagan-side.
Enter white knight Airbus, acquiring 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 is also tariff busting and proposes 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 brings bad tidings, notwithstanding a headline order from EgyptAir. The U.S. Commerce Department has now reached a final determination, in Boeing’s favour. It sets slightly lower duties of c.292 per cent, which apply irrespective of the delivery centre location. Bombardier’s next forum for resolution is at the International Trade Commission (“ITC”) which is expected to hand down a final decision next month.
Airbus’ acquisition injects life to the much publicised programme, at the end of a year which can only be described as turbulent. Protectionism and trade wars outplay globalisation in 2017. Boeing’s issues play nicely with President Trump’s politicisation of trade, or vice versa. Trump’s Commerce Secretary Wilbur Ross continues to weigh in publicly, highlighting the president’s commitment to tougher trade enforcement. Canadian Prime Minister Justin Trudeau cancels the planned purchase of 18 Boeing Super Hornet jet fights in retaliation. Prime Minister May’s lobbying calls to the White House fall on deaf ears, while in Westminster ministers’ remarks that they expect Bombardier to ultimately lose at the ITC next month have enraged Belfast trade union representatives. The U.K. government is understood to be weighing up what options it has in for an appeal in the event of an unfavourable ITC outcome. It may need to assess its own.