Plane exploitations

Last week, Boeing filed an anti-dumping and countervailing-duty petition with the U.S. government, complaining that Bombardier is selling subsidized C-Series aircraft below cost on the American market. Arguments can be marshalled for either side.

On Bombardier’s side, one could ask whether Canadian taxpayers are really subsidizing low prices for the C-Series aircraft. According to Boeing’s estimates, the federal and Quebec government have given some US$3 billion for the development of the C-Series, including US$1.5 billion in equity investment from Caisse de dépôt et placement du Québec. However, these moneys don’t affect (marginal) production costs, and thus prices, because they financed development and are not related to the level of aircraft production.

Direct subsidies do flow from the continuing financing of export customers by Export Development Canada. But Boeing gets similar benefits from the corresponding U.S. bureaucracy, the Export-Import Bank, which is often called “Boeing’s Bank.”

It remains that Bombardier has no incentive to sell at lower price than what it can get. Any rational executive or shareholder will charge what the market will bear.

Of course, a company may cut prices in order to gain market share, selling at a loss in order to maximize profits over time. Boeing claims that Bombardier is selling for less than US$20 million an aircraft that cost US$33 million to produce. This is not a surprise since Bombardier had announced such an aggressive marketing strategy. Deep discounts on new products are common in that industry, and Boeing has used them too.

“Hurrah for Bombardier!” we would say in a free-market economy. Let Boeing stop competitor who’s not happy with that. We are not exactly in a free market.

Moreover, there is a caveat to the claim that past government subsidies to Bombardier do not impact the prices charged on the aircraft market. The massive subsidies may have saved the company from bankruptcy (as the company previously suggested) or least saved the C-Series project from oblivion (which is even more probable). In either case, the subsidies brought additional supply of mid-sized aircraft on the market, pushing