Bombardier braces for critical U.S. ruling

DUTY INVESTIGATION

before closing at $2.14 on the Toronto Stock Exchange, a decline of four per cent.

Boeing first filed a petition in April, alleging that massive government subsidies have allowed Bombardier to embark on “an aggressive campaign to dump its C Series aircraft in the United States.”

The company is seeking a countervailing duty of 79.31 per cent, and an anti-dumping duty of 79.82 per cent. Should the Department find a positive determination in the countervailing duty investigation, U.S. companies such as Delta Air Lines, which has an order for 75 C Series jets, would have to pay import duties on those aircraft.

Bombardier has repeatedly

A final determination is not expected until 2018.

“We continue to believe that Bombardier is well positioned to win this case, given Boeing did not even compete for Delta’s order, as it does not make an aircraft of Delta’s specified size, the high proportion of U.S. content in the C Series (around 50 per cent) and the significant number of jobs that rely on Bombardier and the C Series in the U.S,” Poirier wrote.

In the meantime, Walter Spracklin, an analyst with RBC Dominion Securities, said in a note to analysts that the Boeing complaint will remain a key risk to Bombardier’s stock.

“We believe it’s likely that orders from U.S. airlines will be delayed until the spring 2018 ruling, which in turn may be somewhat of an overhang on the stock in the meantime,” he wrote.

Bombardier is not expected to deliver its first C Series jet to Delta until next year. According to Macquarie Research analyst Konark Gupta, a worst-case scenario for Bombardier, in which Delta forgoes its C Series order, does not mean that the airline wouldn’t be able to find another way to add the aircraft to its fleet.

In a note to clients, Gupta said Delta can sign an operating lease agreement with an aircraft lessor based outside of the U.S. that isn’t subject to the nearly 80 per cent duty.

“The bottom line is that Bombardier could find alternative ways to place C Series in the U.S., potentially at better cash flows, if Boeing comes out as a winner this time,” Gupta wrote. “That said, such alternative ways may not be ideal for Bombardier or airlines, but Boeing’s win could also be potentially overturned in the future.”

The dispute with Boeing is not the only challenge Bombardier faces, as the company is up against another obstacle on Tuesday.

Siemens is expected to decide on Tuesday to pursue a multibillion-dollar rail merger with Bombardier’s French rival Alstom, two sources familiar with the matter told Reuters.

Karl Moore, a professor at the Desautels Faculty of Management at McGill University, said the potential merger between Siemens and Alstom complicates the company’s ability to compete in the global rail market.

“It’s going to be more challenging on the transportation side to compete not only with the big Chinese rail group, but now a big European one,” Moore said.

Bombardier had reportedly been in the final stages of discussions to merge its rail operations with Siemens in a bid to compete with Chinese rail giant CRCC Corp., which resulted from a merger between to firms in 2015.

While Bombardier said it will not comment on specific initiatives involving competitors, a spokesperson reiterated “that its approach to industry consolidation is to consider multiple options and to weight them based on their potential to create value for shareholders.” Bombardier’s stock fell 6.6 per cent early Monday, before closing at $2.14 on the Toronto Stock Exchange, a decline of four per cent.