US Dept of Commerce slaps 220% tax on Bombardier c series

[CONSO]

What competition? MacDac was nearly out of the commercial game at the time of the merger (which was more like MacDac buying Boeing with Boeing's money if you look at who ended up in charge after the merger).

Dammit tdracer- you beat me to the facts behind mdc and ' using BA money to buy Boeing' - As an old BA type who bailed/retired before the fiasco, and knowing and dealing with many BA types at all levels both before and after the mdc buyout, etc I can vouch for ther correctness of your comments.
And BTW- in 2004 I was one of not too many people/ employees/ex employees who got a hug from Alan M. for sending him a significant email about a very good friend.

The MDC miss- managemen style and turkeys are still running things into the ground. :mad:

[DirtyProp]

Bombardier made a fatal error in the Boeing/US trade dispute that almost certainly precludes a negotiated settlement and which the Airbus-CSeries joint venture is highly unlikely to cure, an expert trade lawyer says.

https://leehamnews.com/2017/10/30/bombardiers-fatal-error-trade-dispute/

[Lonewolf_50]

From DirtyProp's link ... Perry says flatly, Bombardier will lose at ITC. Why?


Because Bombardier refused to answer Commerce’s questions in the anti-dumping case.


This, he says, was a fatal error that not only will cause BBD to lose at ITC but also on any appeal. US law is clear on the penalties when a respondent refuses to answer Commerce’s questions.


And, Perry says, Canada and the United Kingdom have identical laws that would hammer a respondent refusing to answer questions from their governments in an anti-dumping case.
Emphasis mine.

[Heathrow Harry]

And you think they'll apply those laws?

Rightly or wrongly Bombadier is a National Champion in Canada

In the UK the Govt are dependent on their survivial on the votes of N Irireland MP's whose voters work for Bombadier...

go figure.

[galaxy flyer]

The whole dumping issue is economically and on its face stupid. If Boeing GAVE its 737s to Delta it would legally fine. If BBD sells at a rather difficult to accurately determine price less than it sold to AC it’s illegal and subject to a 300% fine. As a consumer, I could not less who wants to make the price of my fare cheaper.

[MartinAOA]

Interesting Airbus vs Boeing documentary, hope you don't mind German language ;)

https://youtu.be/LG3vwLzqkEY

Subsidization is the root of all evil. Once it starts it never stops, but without the subsidies we wouldn't have Airbus or Bombardier with their fancy jets ;)

[twochai]

What balderdash!

Neither would you have Boeing, nor any aerospace industry anywhere, except in America!

[DirtyProp]

And you think they'll apply those laws?With the current Administration I'd say it's a pretty good possibility.
I hope BBD fired the legal team responsible for this glaring mistake and finds a way out of this bad predicament. I wouldn't be happy to see them go.

[Heathrow Harry]

Sorry - I was talking about the UK and Canada - the US will of course - until Airbus spreads the contracts around enough Congressional Districts and Delta leans on a few people

[West Coast]

Delta isn’t foolish, they undoubtedly have watched the what happened to Jeff Smisek at United in his attempts to influence government officials.

[ExXB]

There, fixed that for you.

The recent decision on softwood lumber imports from B.C. tells a story. This US government is anti-NAFTA and is trying to provoke a trade-war.

It's all about the lobbying, executive bonuses and campaign contributions.

[J.O.]

True, and no one in the industry threw more slop into the pig trough than Boeing.

[Metro man]

The US spends $25 billion a year subsidising its farmers so that they can sell on world markets at below the cost of production.

Punitive tariffs should be placed on US agricultural products in retaliation until subsidies are removed and the products are offered for sale at a fair price based on the cost of producing them.

Everything they complain about other countries doing, they do themselves.

[peekay4]

Not really. Under WTO rules, countries are allowed a certain amount of "trade distorting" subsidies for agri products. This is called the "amber box" limit.

Countries may also provide additional "minimally distorting" subsidies. These "de minimis" subsidies are not counted towards the "amber box" limit.

In the late 1990s / early 2000s, US agri subsidies did hit $25 billion per year, but "only" about $18 billion of that were considered "trade distorting" subsidies. That's well below the WTO amber box limit of around $21 billion per year at the time.

Since 2001, the US amber box WTO limit is $19.1 billion. However, currently US agri subsidies are way down, to only about $4 billion per year in amber box subsidies, far below the WTO limit.

As a comparison, in the same late 1990s/early 2000s timeframe the EU spent roughly €50 billion in amber box subsidies, more than double the US. But currently the EU provides only about €6 billion per year, so like the US also a sharp decline and well under EU's WTO limits.

Most countries in Asia, Latin America, etc (even Canada) have no right to complain. China, India, Thailand, Brazil, etc., are currently spending hundreds of billions $ of subsidies above their amber box limits.

So if anything, the EU and the US could ask the WTO to impose punitive tariffs on Asian and Latin American countries. But of course, the EU and the US routinely violate other WTO rules, so it's not in anyone's interest to start a massive trade war. (Trump excepted).

[twochai]

Air Canada took delivery of the carrier’s first re-engined 737 with little fanfare on 1 November (below), except for a tweeted acknowledgement of the event by the Star Alliance carrier.

https://www.flightglobal.com/news/articles/pictures-air-china-air-canada-take-their-first-737-442874/

Understandably, it seems Air Canada is too embarrassed to publicise the import of Canada's first 737-Max (duty and dumping tax-free) other than with a very modest tweet! And, don't forget the large numbers of 787-8's, -9's and 777-300 ER's heading across the border this year and next.

Those dullards in Seattle forget that Canada buys much more value in aerospace products from the USA, than they purchase from us.

[twochai]

But of course, the EU and the US routinely violate other WTO rules, so it's not in anyone's interest to start a massive trade war. (Trump excepted)

Your arguments are as inconsistent as those of your government, but that's no surprise in the current circumstances.

Truth is, the Emperor has no clothes. The sycophants from Seattle and Chicago who hang around the royal courts of DC have sacrificed the credibility of a great company.

So sad!

[peekay4]

Your arguments are as inconsistent as those of your government

Umm, "my" government is the same government as yours. ;)

I hear Air Canada will have a media blitz when the 737 MAX actually enters into commercial service. And just last week Air Canada's CEO publicly stated that AC looks to firm up orders for 48 more 737 MAX earlier than expected -- as well as additional CSeries orders.

Although on that front, what's slightly more interesting is the LOI for 31 CSeries placed by an "unnamed European airline" a few days ago (we can all probably guess who).

The problem for Bombardier is that they can sell 30 aircraft per month, every month, for the next 10 years -- and still not get their investment back from the CSeries program.

[twochai]

Umm, "my" government is the same government as yours.

My apologies! I was careless.

The problem for Bombardier is that they can sell 30 aircraft per month, every month, for the next 10 years -- and still not get their investment back from the CSeries program.

That all depends at what average price they are eventually sold, amongst other factors, and experience suggests we won't know the answer to that question until year 20.

Which is precisely the fundamental problem with civil aerospace projects, the payback period is so very long. The benefit to society as a whole, however, is enormous when such projects are eventually successful.

[peekay4]

Well remember that Bombardier will only get 31% of any CSeries future profit, since the majority of the profits now will go to Airbus instead. It's tough to make the ROI when your business case has been cut to 1/3rd of its original value.

And even assuming the program "breaks even" in 2020, Airbus can simply buy out part or all of Bombardier's shares sometime in 2024 or 2025 depending on when the deal closes.

That means Bombardier potentially only has 4 or 5 years to recoup its investments in CSeries while only earning 31% profits during that time.

It's clear that the "sale" to Airbus was a de-risking move from Bombardier -- effectively dumping a troublesome asset for $1 -- aimed primarily to limit liability rather than to realize future profits.

[twochai]

PK:

Don't forget the writedowns Bombardier has already absorbed on the C Series programme. They may well be cash positive by 2020, if they can get their running costs down quickly.

[WHBM]

That all depends at what average price they are eventually sold, amongst other factors, and experience suggests we won't know the answer to that question until year 20.
I presume that published and audited accounts in Canada for Limited Companies are the same as in other mainstream countries, and need to state the revenues for each year, and identify any future risks. Although a year behind, you should be able to work out the various revenue streams fairly straightforwardly.

[peekay4]

No need to go that far.

Let's assume the CSeries will be sold at an average of $30 million per unit -- reportedly what Air Canada paid for the CS300 and much higher than Boeing's $19.1m number.

And we'll even be generous in assuming a 6% unit margin, which is higher than Airbus or Boeing's unit margin.

Since Bombardier will now only get 31% of any profits, that means Bombardier's profit per CSeries sold is only around $550k.

Bombardier has sunk more than $5.4 billion into the program so far, which means (simplistically) they need to sell close to 10,000 (!) aircraft just to get their investment back.

That's double the entire projected 100-150 seat market segment for the next 20 years! Even Bombardier's most optimistic assessment projects only 3,400 CSeries deliveries over 20 years. How many can they sell in the five years between 2020 and 2025 when Airbus can buy out the program?

Yes there are other revenue streams (parts, maintenance contracts, training, etc.) but there are also other costs (e.g., Bombardier is on the hook for up to $750 million in further CSeries investment over the next 3 years).

The numbers are far from adding up for Bombardier. Not to mention that they are $10B in debt largely due to the CSeries, with almost ~ $1 billion maturing in 2019.

I haven't crunched the numbers for Airbus, but I suspect the program's economics aren't so good from their perspective, either. The CSeries acquisition was more of a strategic move rather than a purely financial one.

[msbbarratt]

It seems that Airbus aren't taking on any of the debt. Which is very nice for Airbus. What Airbus brings to the program is more "certainty"; that should result in lower parts prices, an even more solid sales effort, package deals with other Airbus aircraft, you name it.

And most importantly, Airbus brings manufacturing capacity (in the US too, which now might turn out to be useful). There's no point selling thousands of C Series and securing cheaper parts deals if they cannot be assembled.

Airbus themselves have effectively said that their intent is to go big with the C Series around the world. The opening of an assembly line in Mobile was decided before the imposition of the trade tarif; they simply want to make lots more C Series than Bombardier could manage all by themselves. If that all works, the C Series pie will be a lot bigger than originally planned and Bombardier's slice of it should be good for them.

[BRE]

So why did they embark on such a programm? Totally underestimated the cost and then threw more good money after bad?

[peekay4]

And most importantly, Airbus brings manufacturing capacity (in the US too, which now might turn out to be useful).

Airbus is not bringing manufacturing capacity as part of this deal. Bombardier is on the hook for building a brand new facility for the CSeries in Alabama, at an estimated cost of US$300 million.

So why did they embark on such a programm? Totally underestimated the cost and then threw more good money after bad?

Recall when the CSeries was launched, the price of oil was nearly $150 per barrel (Brent crude) with prominent Canadian economists projecting $200/bbl oil. The program's entire business case was predicated on high oil prices. But today oil is "only" in the mid $60s and will likely to stay within +/- $10 for years to come -- even with political instability in Saudi Arabia and fresh OPEC production cuts.

With today's relatively low oil prices, it's hard to justify spending $10m premium for each CSeries compared to its less fuel-eficient alternatives, unless an airline can get steep price concessions from Bombardier/Airbus, receive government subsidies, or can operate in niche markets.

[India Four Two]

Bombardier wins trade dispute in US - BBC News (http://www.bbc.com/news/uk-northern-ireland-42825916)

[Jet Jockey A4]

What an excellent news... Finally someone with some sense in the USA saw through Boeing's false claims.

[Lonewolf_50]

Jet Jockey, there's a process. I don't know if I am surprised at the outcome or not, but I do recall being puzzled at why Boeing tried to shoot a silver bullet on that one. If you look at the defense sector, Boeing has been in a variety of bad odor for (for example) a tanker project that keeps slipping .... I guess they figured "can't hurt to try." *scratches head*

But here on PPRuNe, particularly on R&N, we get a lot of hand wringing and rubbish. (https://www.pprune.org/rumours-news/600028-us-dept-commerce-slaps-220-tax-bombardier-c-series.html#post9905249)

[ZeBedie]

So these C series are going to Delta at $19.6m each? Maybe Boeing have a point?

[Bittell Lakes]

List price is $80m

[donotdespisethesnake]

However, one part of the case remains valid regarding selling the aircraft to Delta for less than cost. There are EU countries that explicitly deny market "dumping" and Bombardier's Delta deal would have been in violation of such laws.

Not necessarily.

EU anti-dumping policy

The EU investigates anti-dumping claims. Specifically, the investigation must show that:


there is dumping by the exporting producers in the country/countries concerned
material injury has been suffered by the Community industry concerned
there is a causal link between the dumping and injury found
the imposition of measures is not against the Community interest.

[vapilot2004]

I found it odd that Boeing brought such a case against a "friendly" manufacturer and supporting government which remains an important ally and neighbor. Obviously the C series is not a direct competitor to the 737, the closest aircraft in size and capability.

I have heard from those familiar with the Delta deal, however, that the extreme price undercut by Bombardier was what incensed Boeing negotiators and led to studying the legal case. This set a precedent that went against their ideas of fair competition.

Selling below cost is a practice that is generally considered "unfair" across Western aircraft manufacturers. Even Airbus, in their (successful) quest to beat McD into submission, always had an eye on the bottom line and were required to do so by corporate governance.

All above said, I am not taking sides in this, but am glad the commission ruled against Boeing. We do not need to enter a trade war with our friendly neighbour to the north.

[RatherBeFlying]

The 737 has had an extraordinarily long run.

There's some very clever engineering keeping turbofans above the runway with gear legs originally long enough for turbojets, but the engine manufacturers keep making fatter fans to gain fuel efficiency:uhoh:

Maybe someday 737 runways and taxiways will be grooved to accommodate fatter engines:}

[vapilot2004]

That's funny! Accommodating the world's most ubiquitous aircraft, indeed. :}

[BluSdUp]

What a glorious day this has been.
And to end it with this news, My goodness!

So The B-Gang managed to herd the C-Series into The A-Gangs arms for 1 dollar ( less then one US dollar).
The cancellation of the F35.
AND loosing face!

A sign of things to come?

" Bend over Trump, we got some cheap lumber coming your way!"

Ok, that was not fair.
But then again, was 292% fair,

End Rant!

[b1lanc]

So does this decision nudge Embraer to a closer tie with Boeing?

[galaxy flyer]

Only if they can convince the Brazilians to give up thier high tech pride and joy. It’ll snow on Christ the Redeemer sooner.

[ExXB]

I wonder how much money has been wasted on all this BS? I certainly hope that all appeal options have been exercised. But I suspect not.

[ZeBedie]

Of course, Boeing have in a way still won, since who would now want to pay any more than $19.6m for their C Series - the price has been set, in a very public way.

[SamYeager]

Can you point to a source other than Boeing where that price is verified? Even if true however the fact that Bombardier are now linked up with Airbus with the associated financial security and spares distribution capability would justify a higher price in future.


It's a bit like saying Boeing would have been held to their initial discounts on the first 787s. The aircraft are now not only in service, ordered by a large and credible airline (Delta) and have a large and credible aircraft manufacturer (Airbus) behind them.

[ZeBedie]

I got that from yesterday's UK Daily Telegraph. I don't think they named their source.

I appreciate that no other order is going to be at that price, but my point is that in all future Bombardier vs airline negotiations, the alleged $19.6m per jet is going to be the elephant in the room. Something that Bombardier could probably do without.

[J.O.]

History says otherwise. Air Canada got a well publicized sweet deal on 787s, better than all the sales that took place since. If you want a deal on new aircraft, the only way is to be an early adopter. Sort of opposite to the iPhone example.

[Carbon Bootprint]

Of course, Boeing have in a way still won, since who would now want to pay any more than $19.6m for their C Series - the price has been set, in a very public way.Good point. I'm not feeling industrious enough to research what the MSRP is, but in any case everyone now has a benchmark to work from.

[msbbarratt]

So does this decision nudge Embraer to a closer tie with Boeing?

I think an important question is does Embraer need Boeing, or does Boeing need Embraer? I suspect the answer now is they both need each other, but that's not Embraer's fault.

Taking on an independent Bombardier would have been a fair fight for Embraer. Just how happy are Embraer with Boeing given that they're at least partially responsible for driving Bombardier into Airbus's clutches? Not very. I wonder how many sarcastic comments there will be in that first meeting... It's not a great way for a business relationship to get going.

[tdracer]

I wonder how many sarcastic comments there will be in that first meeting... It's not a great way for a business relationship to get going.
The meetings between Boeing and Embraer have been on going on for months.
But don't let the facts get in the way of a good rant

[SMT Member]

Of course, Boeing have in a way still won, since who would now want to pay any more than $19.6m for their C Series - the price has been set, in a very public way.

If that was true, every single buyer of the 737 would point to the deal United got and say 'sorry Billy-Bob, but that kite's only worth 22M, not the 85 sticker price'.

https://www.forbes.com/sites/scotthamilton5/2016/03/08/united-boeing-and-the-competitors/#6c344b2a30da

It gets even better, as United later on changed from the -700 to the -800 model. Which, following the logic above, would mean every single -800 should sell for around 22M, against a list price of 96M (2017 price).

I'm afraid there's people here who haven't got the foggiest ...

[Heathrow Harry]

"If you want a deal on new aircraft, the only way is to be an early adopter."

or, like Mr O'Leary, buy a bundle when everyone else is fleeing in panic..................

[galaxy flyer]

And anyone who thinks the corrupt Brazilians won’t subsidize a EMB/Boeing matchup hasn’t been paying attention.

[tsgas]

So many self acclaimed experts, but "nobody" has the actual price that DL paid for the A/C. BBD refused to release the confidential documents to the US .

[ZeBedie]

...I'm not feeling industrious enough to research what the MSRP is,...

$80m

I'm typing this because otherwise, my message would be too short

[BRE]

Let's pretend for a moment we are talking cars here. 19.6 for a new model hatchback vs. 22 for a full size the facelifted version of which is due out next year.

Which is the better deal, assuming the manufacturers play in the same market segment, i.e. not comparing a VW Golf and a Hyundai Sonata?

[Gault]

And anyone who thinks the corrupt Brazilians won’t subsidize a EMB/Boeing matchup hasn’t been paying attention.

I don’t get the whole ’its not fair you got help off your Government’ argument from America, what about all the profit from overseas arms which could never happen without the products getting huge initial funding from the US military, without which the companies involved could never develop their products for later profitable export?.

[msbbarratt]

It's all about making profit. A company has to make profit by whatever legal means possible. There is no profit in being "fair" (at least not a short term one); if a company can make (or protect) a bundle by starting a trade dispute, then that is exactly what the company must do, especially if its unable to raise profit by more conventional means.

So if you're a Boeing board member now finally, at long long last, seeing that the 737 cash-cow is now under serious threat from the competition (the consequence of never having done a fresh ground-up design), you'll cast your eye around for other ways of protecting that cash-cow and phone the lawyers. Pride is another component of it. An additional possibility is that they've not been able to afford a fresh ground-up design just at the moment (the execution of the 787 programme was unfortunately pretty poor, and all this fuss might just be more fall-out from that).

Having plumped for the unconventional trade-dispute route to profits, Boeing's board may now have to explain its thinking to shareholders. They cannot claim that the strategy chosen was worthwhile; they had their arses handed back to them by the ITC after a damned good thrashing. Claiming that it had been a good idea could be considered to be foolish.

Boeing are left with the 737-MAX doing well in the market place, but the writing is surely on the wall. Many would argue that the writing was written in 1992 by Airbus on Boeing's factory wall in French Blue paint with letters 38 feet 7 inches high. That's when the A320 entered service. If Airbus can take a chunk out of Boeing, why not someone else? It's taken 25 years for that someone else (Bombardier, who added their own 37 foot 8 inch letters in red in July 2016) to come along, but here they are and they're not going away.

Boeing need a new design, and I suspect they're now going to have to take a big profits hit to do it. They could have done it for far less, at leisure, any time in the past 20 years, but didn't. Penny pinching, pound (erm, dollar) foolish. If they don't, well they may as well switch off the lights and walk away. Develop, or Die.

On the Topic of Fairness

Fairness encompasses cooperation. The aero-engine business is also pretty competitive, but there are some admirable aspects to the way the major companies conduct themselves. There is a commitment to safety, and they have and will team up when necessary to solve safety problems when a single company is unable to sort an issue by themselves.

An unstinting commitement to help out a commercial competitor is very fair indeed, but is it profitable? Most definitely yes, over the long term; look at the growth of the airline industry since the 1950s, aided massively by the big safety improvements. Co-operation pays off in the end.

What I suspect will happen over the coming decades is that Boeing and Airbus might decide that their best interests lay in teaming up (perhaps more so Boeing than Airbus). If the Chinese really get going in airliner design then they will be a very powerful competitor indeed. Especially so given their own domestic market, regional dominance, and a legal environment with differing views as to what sort of marketing techniques are acceptable.

[donotdespisethesnake]

A company has to make profit by whatever legal means possible.

There is a widespread myth that companies are legally obliged to do whatever they can to make a profit, but it is not true. There is no country that has a law which compels companies to make a profit.

Clearly, companies must make a profit to stay in business, but they are free to choose how much or little profit to make, and also to choose whether to follow more or less ethical methods, providing they do nothing illegal.

The normal and ethical business method is to simply make a better and/or cheaper product. There is no requirement to adopt "unfair though legal" methods.

[GrahamO]

There is a widespread myth that companies are legally obliged to do whatever they can to make a profit, but it is not true.

True, however the law requires the Directors of the company to put the interests of the Shareholders first (without breaking the Law which is another of their responsibilities).

And you'll have difficulty convincing any court that losing money is in the best interest of the Shareholders.

Fiduciary Responsibility is the general term for looking after the owners assets and company and not putting the public good, or non-beneficiaries before the owners.