Bombardier hit with nearly 220% U.S. duty on C Series jets

Aviation firm calls ruling ‘absurd,’ as decision seen as win for rival Boeing

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 Air Lines at risk.

Bombardier released a statement Tuesday saying it 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 C Series.”

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 C Series jet 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.

Boeing released a statement applauding the decision, saying that “subsidies enabled Bombardier to dump its product into the U.S. market, harming aerospace workers in the United States and throughout Boeing’s global supply chain.”

“This has nothing to do with limiting innovation or competition, which we welcome,” Boeing said. “Rather, it has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements.”

The Commerce Department will now instruct U.S. Customs and Border Protection to collect cash deposits from importers based on the nearly 220-per-cent rate.

U.S.-based Delta Air Lines has an order for 75 C Series jets, which are not expected to be delivered until next year. Financial penalties won’t be due till then.

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 C Series going into the U.S . ... 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 plane maker was in discussions with leasing businesses in China about purchasing its C Series planes.

Meloche told Reuters in China he hoped the deals could be announced when Prime Minister Justin Trudeau visits China next month.

However, its transportation unit is expected to face increased competition, as Germany’s Siemens AG opted to merge rail operations Tuesday with rival French company Alstom, leaving Bombardier behind after months of negotiations.

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

The federal government has previously thrown its support behind Bombardier, urging Boeing to drop or settle its petition.

Trudeau said earlier this month that Boeing can forget about selling fighter jets to Canada as long as the trade spat is ongoing.