BOMBARDIER SLAPPED WITH HEFTY DUTY ON JET SALES
TRANSPORT
The U. S. Department of Commerce has clobbered Montreal-based aerospace giant Bombardier with a hefty 219-per-cent duty on the sale of its CS100 commercial jets to a U. S. airline following a trade complaint from an American rival.
The department ruled that Bombardier benefited from improper government subsidies, a finding that deals a blow to the company’s chances in its ongoing dispute with U.S. rival Boeing.
Boeing had complained that Bombardier inked a deal with Delta Air Lines for up to 125 of the jets by offering the planes at belowmarket price.
The financial penalties aren’t officially due until Bombardier delivers the first CS100 to Delta some time in the spring.
The key will be whether U. S. officials find that the deal between Bombardier and Delta actually hurt Boeing’s business, an issue that’s not expected to yield a finding for at least six months.
And that was not all the bad news for Bombardier. European railway manufacturers Siemens Mobility and Alstom announced a merger Tuesday that leaves Bombardier Transportation facing a new “European champion” and a substantially larger rival.
The U.S. Department of Commerce made a preliminary ruling Tuesday that Bombardier Inc. received countervailing subsidies, and will implement a hefty duty of 219.63 per cent on all U. S.-bound C Series jets.
While the positive determination against Bombardier was largely expected, it is a victory for Boeing Co., which prompted the investigation, and potentially puts the Montreal- based company’s sale of 75 aircraft to Delta Airlines at risk.
Bombardier released a statement Tuesday evening saying the company strongly disagreed with the Commerce Department’s preliminary decision, reiterating its position that the U.S. government should “reject Boeing’s attempt to unfairly tilt the playing field in its favour.”
“The magnitude of the proposed duty is absurd and divorced from the reality about the financing of multibillion- dollar aircraft programs ,” Bombardier said.
“This result underscores what we have been saying for months: the U. S. trade laws were never intended to be used in this manner, and Boeing is seeking to use a skewed process to stifle competition and prevent U. S. airlines and their passengers from benefiting from the CSeries.”
Boeing initiated the investigation in April, filing a petition with the Department of Commerce and the U. S. International Trade Commission alleging that Bombardier, “armed with billions in subsidies from Canada, Quebec and the United Kingdom,” aggressively sold its CSeries jetliners in the U. S. “at absurdly low prices.”
After the USITC voted to continue its investigation into Bombardier’s trade practices in June, the Department of Commerce sided with Boeing, concluding in its preliminary determination that its smaller Canadian rival had received countervailing subsidies. It calculated its preliminary subsidy rate of nearly 220 per cent using reported information from Bombardier, as well as the Canadian, Quebec and U.K. governments.
The Commerce Department will now instruct U. S. Customs and Border Protection to collect cash deposits from importers based on the 220-per-cent rate.
U. S.-based Delta Air Lines has an order for 75 CSeries jets, which are not expected to be delivered until next year. Financial penalties would be due once the jets are delivered.
Lawrence Herman, an international trade counsel at Herman and Associates, said the decision shows that the U. S. administration is implementing policy in an “aggressive” way.
“This basically says you have to triple the price of the CSeries going into the U. S.,” Herman said. “It will obviously have a major commercial impact on the market, and I think will have an impact ( Wednesday) on the trading of Bombardier’s shares.”
Before the decision was announced, Bombardier’s stock surged Tuesday afternoon, increasing by as much as 13 per cent to $2.43 on the Toronto Stock Exchange before closing at $ 2.27, an increase of six per cent.
According to a Reuters report, Bombardier Commercial Aircraft’s head of structured finance Marc Meloche said the planemaker was in discussions with leasi ng businesses i n China about purchasing its CSeries planes. Meloche told Reuters in China he hoped the deals could be announced when Prime Minister Justin Trudeau visits China next month.
However, Bombardier’s transportation unit is expected to face i ncreased competition, as Germany’s Siemens AG opted to merge rail operations with rival French company Alstom, leaving Bombardier behind after months of negotiations.
Si e mens a nd Als t om signed a memorandum of understanding Tuesday to combine Siemens’ mobility business, including its rail business, with Alstom.