LONDON/MONTREAL (Reuters) - Canada’s Bombardier Inc (BBDb.TO) is unwilling to swallow the extra cost for airlines if the United States slaps duties on its CSeries jet and is keen to press ahead with the deal that provoked a North American trade spat, people familiar with the matter told Reuters.
The stance gathered momentum as the United States prepared to issue a preliminary ruling on whether Bombardier used subsidies to bankroll a sale of 75 new jets to Delta Air Lines (DAL.N), which U.S. rival Boeing Co (BA.N) claims took place at unrealistically low prices.
Tuesday’s expected ruling is one step in a process that could lead to U.S. import duties being levied on the CSeries, forcing Delta and other potential U.S. customers to pay millions more for each jet, on top of the agreed purchase price.
That has prompted some aerospace analysts to speculate the deal could fall through unless Bombardier agrees to soften the blow for Delta, whose support for the CSeries rescued a programme beset by delays and cost overruns.
Although Bombardier cannot legally skirt the measure by agreeing to pay any duty directly on Delta’s behalf, trade lawyers say it could technically import the jets itself through a local subsidiary in a way that would be neutral for Delta.
But doing so could significantly depress the net amount Bombardier receives and could be seen as legitimising Boeing’s complaint on prices, which Bombardier has rejected.
“The economics won’t make sense,” a person familiar with the company’s thinking said this week.
Secondly, Bombardier would not readily allow Delta to walk away from the deal because it might risk other buyers asking for an “out” which could prompt an unravelling of its commercial recovery plan.
“Delta may ask to cancel; Bombardier will say no,” another person familiar with the case predicted. None of the sources agreed to be named because of the matter’s sensitivity.
Bombardier’s decision to tough it out seems designed to encourage Delta to take up cudgels against Boeing and the U.S. government. It could have ramifications for the large jet market where the same airline is expected to choose between Airbus SE (AIR.PA) and Boeing for a big single-aisle jet order in the coming year.
“I think they (Delta) will send a signal and look closely at Airbus,” said Teal Group aerospace analyst Richard Aboulafia.
Delta has said it wants the CSeries soon, but has not said how it will respond if forced to pay potentially large duties.
A Delta spokesman said it was too early to comment.
People close to the case said it could lead to months if not years of contractual and legal wrangling, with Bombardier likely to appeal any negative finding and Canada ready to take the case to the World Trade Organisation in the absence of a settlement.
“I think it will go to legal territory whatever the number (in import duties) because Canada wants to make it a point of principle,” one of the people familiar with Bombardier’s thinking said.
But many of the legal options are covered in dust. Industry veterans say it is the first time in memory duties have been considered on aircraft, following a 1980 agreement to free aircraft trade among 32 of the world’s leading trading powers.
How this plays out could depend on the size of any import duty. A small duty might allow all sides to declare victory and let Bombardier and Delta negotiate a smooth delivery of the planes, but many analysts say a hefty import fee is more likely.
Seattle-based trade lawyer Bill Perry said Bombardier could appeal, but only after a final decision is made by the U.S. International Trade Commission next February.
Delta or any nominated importer would still have to pay duties as cash deposits during that process, he said.
Reporting by Tim Hepher; Editing by Matthew Lewis