The DoC findings in the Boeing v. Bombardier anti-dumping dispute were a shock. Not the decision, which was expected, but with the level of countervailing duties applied — 220% is breathtakingly large and absurd.   Global aerospace is a system with sensitive points just about everywhere.  Boeing has used a clumsy tool to unleash a new level of chaos into this system.  Let’s take a look at some of the obvious impacts. While this is not a definitive list, as time progresses, the list will grow and the impacts will become more clear.

United States

Boeing – Apparently a victory.  But maybe not.  Any aircraft maker selling to a US airline now has to wonder whether Boeing will unleash the same bludgeon on them.  Even ATR, who makes turboprops, must be wary – who says that Boeing won’t want to one day access this market?

Boeing wants a “fair playing field” – but it has not played on the sub-150 seat field in over a decade.  An interview with Scott Carson at Boeing in 2008, when the C Series was launched by Dominic Gates at is apropos – This market is not attractive but a source of a potential threat and that may cause harm, but in actuality hasn’t.  Boeing’s real motivation is fear – that the C Series might be stretched and compete with its 50-year 737 that has become economically obsolete at under 150 seats, the 787 debacle, combined with cash needs for 777X and 7M7, leave it under pressure to fund a new technology narrow-body replacement for another decade.

UTC – is a company already on Boeing’s radar as a growing threat.  Now that threat level has risen because of the UTC of Rockwell Collins.  UTC has a lot riding on the success of the C Series.  Don’t forget many senior Bombardier managers are ex-UTC, and that UTC accounts for the lion’s share of the 55% US-sourced parts on the C Series.  Will this slap-down force UTC to toe the line with the next generation of Partnering for Success at Boeing, or result in a backlash?

Aerospace workers – Deloitte undertook a study of the US aerospace market and identified about 385,000 people. Boeing employs 60,000 people in the US.  Not all are in commercial aerospace.  But if we took all 60,000, that represents 16% of the total.  Renton (the 737 FAL) has about 10,000 which is under 3%.  Let’s be generous and say for every Renton employee there two more in the supply chain,  and we get to 8% of the US aerospace workforce related to 737.  The DoC decision essentially says if you work for Boeing’s 737 program you matter, but if you don’t, who cares?  Are the ~30,000 potential US people associated with the 737 more important to protect than the ~22,000 US people working on the C Series?

This particularly hits vendors who are supplying newer technologies to the C Series, as this is a much more advanced aircraft than the 737.  The C Series is a high-tech aircraft, with high-tech suppliers, while the 737 uses older materials, older manufacturing techniques, and lacks the advanced features of the C Series virtually across the board when the aircraft are compared system by system.  Will Bombardier begin to transfer its supply chain outside the US?  That potential also exists if Canada decides retaliation is appropriate.

Airlines – US airlines are going to see this decision in a very poor light.  Their need for competitive sourcing has been squashed.  If they don’t buy from Boeing they may fall under the bludgeon too.  Any aircraft OEM other than Boeing may be hammered the same way.  So far three airlines have publicly been named as supporting Bombardier. One, a significant Boeing customer, has not yet been named.

JetBlue’s CEO letter to the DoC explains the scenario perfectly. “Just as competition between Airbus and Boeing has driven innovation and competition in larger civil aircraft, JetBlue and the flying public will benefit from competition between the Bombardier C Series and the Embraer E190 for smaller civil aircraft. The C Series is somewhat comparable and competitive with our Embraer E190, not with the larger Boeing and Airbus aircraft as alleged in the petitions. In fact, Boeing makes no comparable aircraft to the C Series (by number of or seat configuration). Imposing tariffs on the C Series would potentially benefit Embraer, not Boeing or the U.S. aerospace industry, and tariffs would burden Americans with higher airfares, less innovative aircraft and reduced competition.”  That’s right – Boeing does not win this fight with any new orders.  They have potentially handed a win to Embraer. What a crazy outcome from unleashing forces beyond its control!

Delta Air Lines – a key antagonist in this dust-up, Delta will be working on its own reaction to this decision.  Do they walk away from the C Series?  Maybe, but that means going to Embraer which now has no incentive to mark down pricing.  All Embraer has to do is price slightly below C Series+ 220%.  Will Delta turn to Boeing for a solution? No, Boeing does not have one.  Nor does Airbus.  Only Embraer and Bombardier have a 100-seat solution and this is going to annoy Delta greatly.  Might Delta retaliate against Boeing in other ways?  We’d think so.  As it is, there is not a great relationship between the two companies. This DoC decision takes it to a new low.  This may Boeing future business far in excess of the C Series, and we might expect all Airbus orders at 150+ from Delta for the foreseeable future.

US travelers – Absent efficient aircraft, smaller communities are seeing air service dry up.  Delta and its C Series were going to open new markets and offer travelers something special. (see yesterday’s news from APEX about the Delta C Series cabin IFE) Not now.

The DoC decision may ensure that US air travelers will either have to “enjoy” Boeing’s 17-inch seat or not have any service at all, versus the CSeries 18.5-19 inch width seats. Fares will increase due to less efficient aircraft being used.  And the environment will suffer from larger carbon footprints and noisier aircraft for those around airports, as the C Series is very “green”.  It appears the DoC did not factor any of these considerations into its decision.  Air travelers in the US are clearly negatively impacted by the DoC decision. The precedent is such that US consumers, in general, might one day soon be impacted in other ways should other US companies decide to use the same precedent to protect them from more technologically advanced foreign competition.

Canada

Bombardier – Apparently a loser. But maybe not.  Yesterday, before the anticipated bad news from DoC, the stock price shot up on news of potential C Series business in China.  Moreover, Bombardier is not without options.  The DoC decision will be challenged.  It is going to be very tough for the DoC and Boeing to prove any damages.  (Boeing has already lost the case among most industry analysts. These are people who know and understand the issues.) The US is a crucial market for C Series but there is a bigger market outside the US that matters a lot more.  The C Series program is shocked but not frozen.  Bombardier has options which it wisely is not talking about yet.

Canadian government – The federal government and province of Quebec have already made their views clear.  They will fight Boeing over the decision.  They can’t fight with the DoC, only challenge them.  This is the problem that Boeing created – it has unleashed forces it cannot control.  State actors are now going to move forward and it is not clear where this ends.  But it will be messy.  Boeing is going to be frozen out of business with Canada and that price is likely to be far in excess of anything the C Series is costing them – which is actually $0 to date.  Boeing says the C Series might one day become a threat – maybe, but Boeing will be paying in advance for this perceived threat.

Quebec citizens – The citizens of Quebec own 49% of the C Series program and may need to wait a bit longer to receive a positive return on their investment in the aerospace sector and Montréal aerospace hub.

Other World Regions and Players

The UK – The British will be annoyed about the DoC decision as it threatens Irish workers. The present UK government depends on an Irish party to stay in power.  The British Prime Minister, given a choice between staying in power and sticking it to Boeing, has no tough decision.  Boeing gets it in the neck.  How? That is not clear yet. But there is the P-8 program and the Chinook program.   The UK might also lean on IAG, owner of British Airways, to “do the right thing”.  Which means more Airbus (helpful with Brexit angst) and perhaps even some C Series.  The reaction from Britain and Canada could spread commonwealth-wide.

Airbus – while at first glance they might not be impacted, take another look.  If Delta decided to order aircraft (say the A350-1000) and secures a great price, will the DoC be brought to play by Boeing?  Once unleashed, this bludgeon doesn’t go away.  Anything Boeing doesn’t like could bring it back into play.  The DoC decision is awful even for Airbus because there is a manifest threat.

This threat is far more dangerous than the WTO, which has no teeth.  Airbus will be fuming over this DoC decision, although behind the scenes thankful that Bombardier’s competitive thrust may be slowed.  The phone lines between Toulouse, Hamburg, and Brussels will be busy.  Fortunately, Airbus does have a final assembly line in Mobile Alabama for narrow-body aircraft and can avoid a similar situation as “made in the USA.”

EU – For the same reasons that the UK and Airbus should be worried, so too for the rest of the EU.  Boeing is potentially creating a walled community in the USA.  Any other US company can now see what Boeing has done and request the same protection.  Consequently, it should come as no surprise to see the EU review this matter.  The EU has already been tough with US companies like Google and Apple.  More will be forthcoming.  Boeing does not get a win in the EU from this. Nor does the US consumer, who might in the future have to pay more for anything a US company doesn’t like – like an EU-sourced car for example.

Brazil – the only winner we see now is Brazil and Embraer. The path is clear, US prices on the E2 can be increased markedly.  Embraer is now much better placed to keep JetBlue and can price accordingly.   The 220% number gives Embraer an unprecedented amount of pricing leeway.  Note this does not give Boeing anything because it has no competing product. In other words, no win for Boeing at all.

Bottom Line
We cannot see this how this DoC decision is a win for Boeing.  Boeing will not make one additional US sale in the under 150-seat market because it’s only potential offering, the MAX7, has fewer total orders worldwide (64) than the Delta C Series order (75), having been rejected by airlines as not meeting their needs.

The market does not see the as competitive and compelling.  This isn’t just our view.  Read what Boeing’s Ray Conner had to say about this.

Moreover, the follow-on repercussions of the DoC decision will not leave Boeing unscathed. Not only does it not protect Boeing, it will cause harm to the company.  Anyone doing business with Boeing in the US must now step back and reconsider their options.  Unleashing the DoC may turn out to be a monumental error.

The problem is that nobody can put this genie back in the bottle.  All that is going to happen now is every antagonist will be reaching for their own genie.  The outcome will be additional market chaos.  Somebody in the US government. higher up from the DoC, should step in and stop this madness.  But politics and economic populism trump logic, and a lot of people in the US supply chain are going to get hurt.  What a terrible decision this has turned out to be.

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