WITH A MASSIVE 220% U.S. DUTY HANGING OVER ITS HEAD, BOMBARDIER EYES OTHER MARKETS FOR CSERIES JETS.

‘NOT TIME TO PANIC’ AS IT LOOKS TO OTHER MARKETS FOR STALLED CSERIES

With Bombardier Inc.’s ability to sell its CSeries jets to the United States effectively halted by a massive 220 per cent duty, the Montreal-based company is expected to focus its efforts on selling the CSeries to other markets as it tries to prevent its five-year turnaround plan from going into a tailspin.

The growth of the previously beleaguered CSeries program as well as its transportation group, Bombardier’s most profitable division, are key drivers of the company’s five-year turnaround plan, which began shortly after Bombardier’s chief executive Alain Bellemare was appointed in 2015.

“We think that there is great opportunity for the CSeries in China and our commercial teams are working hard to market the aircraft there,” Bombardier’s commercial aircraft spokesperson Bryan Tucker said in a statement Wednesday. "We are encouraged by interest in the region.”

National Bank analyst Cameron Doerksen said the CSeries remains the biggest investor concern and expects that the uncertainty surrounding the Boeing dispute will continue to impact Bombardier’s stock.

Bombardier’s stock plummeted more than 13 per cent after opening Wednesday before closing at $2.10 on the Toronto Stock Exchange, down 7.5 per cent.

“The CSeries business is probably not viable longer term without access to the U.S. market, but Bombardier may be able to find enough international customers to still ramp up production in the next few years,” Doerkson wrote in a note to clients.

“If Bombardier can win a new order for the CSeries from a large airline outside the U.S., we believe much of the anxiety would be alleviated.”

In a preliminary determination released Tuesday, the U.S. Department of Commerce found that Bombardier had received countervailing subsidies and imposed a hefty 219.63 per cent duty on all imports to the U.S. of the CSeries jet, well above the 79.41 per cent requested by the Boeing Co. in its original petition filed in April.

While the positive determination in Boeing’s favour was expected, the magnitude of the duty came as a surprise to analysts, and trade experts. Doerksen called it “a shocking (and in our opinion ludicrous)” subsidy rate.

The decision came just hours after Germany’s Siemens AG and France’s Alstom announced they had signed a memorandum of understanding to merge rail operations, a blow to Bombardier’s rail operations. The company was previously reported to have been closing in on an agreement with Siemens in August.

The Commerce Department’s decision has left many analysts and investors concerned the company could be shut out of the U.S., the largest market for the aircraft in the world.

Fitch Ratings analyst Eric Ause said the decision was negative to Bombardier’s credit profile, although it would not immediately affect the company’s rating.

Mark Warner, a CanadaU.S. trade lawyer, said it’s “certainly not a time to panic” and that Boeing has a difficult case to prove going forward.

“When you try to talk about an injury or threat of injury, you typically need to already be competing in the market,” Warner said. “There seems to be a really good argument that Boeing has not competed with Bombardier, because it is not making planes of that size and has not attempted to sell planes of that size.”

At the heart of Boeing’s complaint, filed with both the Department of Commerce and the U.S. International Trade Commission, is Delta Airlines order for up to 125 CSeries jets, which Bombardier is scheduled to begin delivering next year. Boeing has alleged that Bombardier received billions in subsidies from Canada, Quebec and the United Kingdom and aggressively sold its CSeries jet in the U.S. “at absurdly low prices.”

The Department of Commerce has yet to issue a final determination on the matter, which will not be made until later this year. That decision could still be overturned if the USITC finds that Boeing did not suffer material injury as a result of the Delta sale. Delta, meanwhile, dismissed the Commerce ruling as “just preliminary” and stressed that Boeing’s only proposed alternative to the CSeries was an offer of used Brazilianmade Embraer jets.

“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.

The Commerce Department is expected to issue a preliminary determination regarding its antidumping investigation next month. But investors should not expect a quick solution to this dispute, said AltaCorp analyst Chris Murray in a note to clients.

“As should be expected, this likely complicates further near-term sales to U.S. carriers until some clarity emerges,” Murray wrote.

“We see a continued path through various appeals and counter appeals through U.S., (World Trade Organization) or NAFTA dispute bodies over the years, if not decades, to come.”