Delta-Bombardier deal at center of U.S.-Canada trade dispute

5:03 p.m Monday, Oct. 9, 2017 Business
Source: Bombardier

Delta Air Lines is caught in the cross-hairs of a Trump administration “Buy American” fight against the carrier’s deal to buy jets from a Canadian aircraft manufacturer.

Atlanta-based Delta negotiated low prices to purchase 75 Bombardier jets along with options for 50 more aircraft. That move prompted rival Boeing to allege that Bombardier was getting illegal subsidies and dumping its product into the U.S. market.

After slapping Bombardier with a proposed duty of nearly 220 percent, the Trump administration has turned up the heat by adding an anti-dumping duty of nearly 80 percent.

The proposed duties are taxes on imports that, if upheld in a final decision in February, could cause Delta to pull away from the deal or pay significantly higher prices for planes that could increase the cost of flying.

“This controversy is emblematic of how Donald Trump has shifted the trade debate in America,” said aerospace analyst Loren Thompson, who is also chief operating officer of a think tank that gets some of its funding from Boeing. “Any company that’s not on the side of American jobs is asking to get hit on the head with a 2-by-4.”

It’s unclear what the exact final financial impact might be to Delta as details of the price paid for the CS100s have not be made public. However, industry analysts say Delta negotiated a price of somewhere around $20 million to $25 million per plane — and the initial 220 percent tariff could bring it closer to the list price of $5.6 billion for the 75-plane order, or nearly $75 million per plane. Airlines typically negotiate steeply discounted rates for large orders of planes, however.

Delta CEO Ed Bastian said when announcing the deal last year that attractive pricing helped influence the airline’s decision to make the order.

He said then that he believes the order makes Bombardier “a third competitor,” along with Boeing and Airbus, “and we’re thrilled to be able to have that choice in the marketplace.”

The trade dispute puts Delta in a tricky position, as Delta CEO Ed Bastian attempts to become a Trump ally on other issues including tax cuts, creating jobs and air traffic control modernization.

Bastian along with other airline CEOs met personally with Trump in February, then the Delta CEO announced plans to hire 25,000 people over the next five years. Bastian has also softened the company’s stance against air traffic control privatization, aligning more with the Trump administration’s position.

And in the last couple of weeks, Bastian praised Trump’s tax reform plan.

But, “alliances change quickly,” said aviation analyst Richard Aboulafia.

U.S. Commerce Secretary Wilbur Ross in a written statement last week said “we will do everything in our power to stand up for American companies and their workers.”

The move has drawn sharp international responses.

Canadian Prime Minister Justin Trudeau said his government could stop doing business with Boeing if the aircraft manufacturer doesn’t drop its trade complaint.

Bombardier, for its part, says more than half of its planes’ parts, including its engine, are sourced from U.S. suppliers.

British Prime Minister Theresa May said she was “bitterly disappointed” with the U.S. government decision. Bombardier has operations in Northern Ireland, with more than 4,000 workers in Belfast. Britain’s defense secretary warned Boeing that the move could jeopardize future U.K. Defense contracts.

Aboulafia said he also expects blowback against Boeing from airlines.

“How could this not result in Delta favoring Airbus next time there’s a competition, or any other U.S. carrier that doesn’t like it when an airplane manufacturer tells them what they can and cannot buy?” he said.

One issue is to what extent Bombardier and Boeing directly compete against each other in the market for jets that seat 100-110 passengers like the CS100.

Bombardier says Boeing “abandoned the segment of the market served by the C Series more than a decade ago,” when it stopped making similarly-sized Boeing 717s.

Today, the smallest commercial jets Boeing makes are 737s, which are larger than 717s and CS100s.

Bombardier tweeted Friday about what it called Boeing’s “peculiar claim. How can you lose a sale when you don’t have a product to offer?”

Delta called the Commerce Department announcement “just preliminary,” and said: “The real decision will come in early 2018” when the U.S. International Trade Commission decides whether any U.S. manufacturer would be harmed.

“We are confident the USITC will conclude that no U.S. manufacturer is at risk because neither Boeing nor any other U.S. manufacturer makes any 100-110 seat aircraft that competes with the CS100,” Delta said in a written statement.

But Thompson contends Bombardier aims to take market share from the Boeing 737.

“Everybody in the aerospace industry is trying to get along with the Trump administration,” said Thompson. “I think it could really hurt Delta with the Trump administration, because its deal gives Bombardier entré into Boeing’s home market.”

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