December 18, 2017 / 8:58 PM / 8 months ago

UPDATE 2-Boeing-Bombardier spat puts U.S.-Canadian trade deals in spotlight

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By Alwyn Scott and Alana Wise

WASHINGTON, Dec 18 (Reuters) - Boeing Co and Bombardier Inc traded barbs on Monday over the U.S. planemaker’s claim that its Canadian rival benefited from billions of dollars in illegal government subsidies and dumped its newest jetliner in the United States at below cost.

At a contentious hearing of the U.S. International Trade Commission (ITC), Boeing accused Bombardier of harming its ability to sell 737s in the U.S. market, in one of the final stages of a bitter trade dispute due to conclude in February.

Bombardier argued Boeing’s large 737 order book shows there has been no adverse impact from its CSeries jet and that the U.S. planemaker does not manufacture a jet that competes with the new model.

“Boeing is making money hand over fist. And with a backlog of 737 orders years into the future, there are no signs of difficulty on the horizon,” Bombardier representative Peter Lichtenbaum said.

If the ITC sides with Boeing, as it has so far, it could effectively keep U.S. airlines from using Bombardier’s CSeries jet by imposing duties of nearly 300 percent, one of the largest ever imposed for a market-based economy, Boeing said.

“These investigations have already established beyond question that Bombardier has taken billions of dollars in illegal government subsidies to prop up its C Series program. The C Series would not even exist at this point but for those subsidies,” Boeing said in a statement emailed during Bombardier’s panel remarks.

The U.S. Department of Commerce was due to finalize the proposed duties on Monday or Tuesday.

If Bombardier wins, Chicago-based Boeing says its smallest 737 model could face unfair competition from the CSeries for decades.

Canada’s ambassador to the United States, David MacNaughton, warned that a positive finding of material harm to Boeing by the ITC could represent a possible violation of World Trade Organization agreements and prompt a more formal complaint with the global trade group.

“Boeing’s assertion that future imports from Canada threaten to cause material injury is necessarily based on just the type of ‘speculation and conjecture’ that is prohibited under both U.S. and international law,” MacNaughton told the panel.

Canada earlier this month scrapped plans to buy 18 Boeing Super Hornet fighter jets, underlining Ottawa’s anger over the trade challenge. Boeing has said it considered all potential risks before deciding to launch its trade case.

The case stems from an April 2016 sale of 75 CSeries jets to Delta Air Lines Inc. Boeing claims Delta paid $20 million per plane, well below an estimated cost of $33 million and what Bombardier charges in Canada.

“A single large order, like Bombardier’s sale to Delta, takes years of demand out of the market. In this industry, if we lose a sale, it’s gone forever. That’s years of lost production and deliveries for Boeing, years of lost work for our employees, and years of lost work for our U.S. suppliers,” Boeing Executive Vice President Kevin McAllister said.

European planemaker Airbus SE, which is buying a controlling stake in the CSeries program and has a competing plane, has said it would add a second CSeries production line to a factory in Alabama, making it a U.S. product for domestic airlines.

Boeing says that should not negate the duties because Airbus and Bombardier would import fuselages and wings and merely be assembling in the United States.

But Bombardier argues that Boeing’s case is against full imports of airplanes, not parts, so it does not apply to imports of wings, fuselages and other pieces. Bombardier says more than half of the value of CSeries content comes from the United States, including engines by Pratt & Whitney.

DEFINING DEAL

Boeing says the Delta deal was market defining because other airlines will demand the same low price and the planes will be in service for decades.

All jetliners are sold below cost initially because airlines are taking a risk on a new jet model and upfront development costs are high, Bombardier argues. The cost drops over time as the factory produces more planes and gets better at making them.

The U.S. planemaker said Bombardier failed to cooperate in a U.S. investigation providing pricing information to the United States.

Bombardier said it turned over the Delta sales contract but cannot accurately estimate the cost and price of those planes because they are being built and delivered in coming years.

Boeing says the CSeries benefited from hundreds of millions of dollars in launch aid from the governments of Canada and Britain and a $1 billion equity infusion from the province of Quebec.

Those subsidies are not prohibited because they are either market-based investments or repayable loans, Bombardier said.

Bombardier also argues that Boeing and Airbus do not compete with the CSeries because their planes are larger and have more range. The CSeries’ more direct competitors are smaller jets made by Embraer Mitsubishi.

The CSeries poses no threat to the U.S. aerospace industry because building it at the Airbus factory in Alabama would create U.S. jobs and generate billions of dollars in business for U.S. aerospace companies, Bombardier said. (Reporting by Alwyn Scott in New York and Alana Wise in Washington; Editing by Tom Brown)

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