David beat Goliath. Again.
The vote was unanimous – the ITC found no damage to Boeing in the C Series dumping case. This was not what anyone was expecting. Especially after President Trump spoke in Davos today about “fair trade”.
So the 292% tariff is gone. Delta Air Lines can prepare for first deliveries this year, and go back to retiring MD80s. Other US airlines like Jetblue and Spirit, which wrote letters to the ITC, are likely to now express greater interest in the CS100. The intense competition among US airlines, even if they are an oligopoly, will grow at the lower end. Any airline with the lowest costs drives industry pricing. If Delta can deploy the CS100 effectively by pitching it against regional jets used by other airlines in key feeder markets, the traffic will likely flow to Delta. The CS100 is more comfortable than regional jets in US service.
That, in turn, means the pressure on American and United to quickly find a solution for the 100-150 seat segment. The E190-E2 will be ready soon and will keep CS100 pricing keen. Bombardier and Embraer are likely to see a lot of product interest from US airlines in short order.
The stunning decision at the ITC is now making everyone redo their calculations. The biggest winner today is perhaps not Bombardier, but Airbus. Airbus got half of the C Series program for nothing. It does not matter if now has to pay more for the other half. Next, we’d say come the thousands of people working at US-based, UK, and EU suppliers for the C Series. Alabama comes next where a new FAL will create hundreds of jobs. The ITC decision created more winners than losers. Had the decision gone the other way, we’d think there were more losers than winners.
Bombardier’s statement on the matter reads: “Today’s decision is a victory for innovation, competition, and the rule of law. It is also a victory for U.S. airlines and the U.S. traveling public. The C Series is the most innovative and efficient new aircraft in a generation. Its development and production represent thousands of jobs in the United States, Canada, and the United Kingdom. We are extremely proud of our employees, investors, and suppliers who have worked together to bring this remarkable aircraft to the market. With this matter behind us, we are moving full speed ahead with finalizing our partnership with Airbus. Integration planning is going well and we look forward to delivering the C Series to the U.S. market so that U.S. airlines and the U.S. flying public can enjoy the many benefits of this remarkable aircraft.”
We do not expect one aerospace job loss at Boeing from this decision. We expect Boeing to now focus on the MAX8 and the larger MAX models. Boeing is also going to face renewed pressure to make a deal with Embraer. Whereas the Embraer valuation was about $5Bn when Boeing’s interest leaked, it will now go higher. Embraer and the Brazilian government are in the driver’s seat. Boeing needs them more than the other way around.
While the ITC decision is a setback to Boeing, it won’t impact Boeing for a long time. This is because Boeing’s focus is on the MAX8 and bigger. That is the sweet spot for Boeing. Nothing about today’s decision will slow Boeing down from its current trajectory. The sub-150 seat market was of little consequence to Boeing and only becomes important again when it gets the E2 program into its product mix. Then we expect Boeing to roar back into the segment determined to grab 50% or more of the market.