Sep 28, 2017

How a Canadian regional jet could spark a ruinous trade war

With friends like the US Department of Commerce, does Boeing have a worse enemy in terms of a trade war fought over subsidies?

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

A CSeries 100 in Delta livery

Will a ham fisted imposition of massive duties on a Canadian airliner, the Bombardier CSeries regional jet, in a preliminary US trade dispute ruling, become aviation’s Sarajevo moment?

The decision of the US Department of Commerce to assess that the slick new jet from Canada had benefited from ‘illegal’ subsidies of 219.3 percent in relation to the sale of 75 CSeries 100 jets to America’s Delta Airlines has already provoked a war of words with the UK Government, as Bombardier makes the airliner’s wings in Northern Ireland.

This follows earlier threats by Canada’s Prime Minister Justin Trudeau to scrap his government’s planned purchase of Boeing Super Hornet fighter jets if the US tried to destroy the viability of CSeries sales to American carriers at the behest of Boeing.

At its most fundamental, this is an issue which relates to the never ending claims and counter claims that Boeing and Airbus have made against each other over alleged unfair subsidies for almost 20 years.

In this case Boeing doesn’t even have a design which comes close to the specifications and performance of the 100-115 seat CSeries 100 jet, and didn’t try to sell against it on its technical merits.

It appeared to want to head off any risk that Bombardier might evolve the CSeries into a threat to its own larger capacity 737 MAX single aisle family, the nearest poteential competitor to the CSeries 100 model being the slow selling 737 MAX 7 model.

Delta has made it known that it couldn’t afford to take delivery of the Canadian jets if it had to pay the penalty duty recommended by the US Depart of Commerce. Delta is also America’s, and the world’s, largest airline, and a major existing as well as potential customer for other Boeing and Airbus jets.

Its current and likely future fleet needs include hundreds of jets that could be made by either rival maker, and all of them can involve the purchase of engines and systems that make up large parts of the value of such purchases from aerospace industry firms on either side of the Atlantic as well as in Japan, Korea and China.

The real world truth about jet airliner subsidies for Boeing, Airbus and Bombardier, is that they happen everywhere, and despite all the posturing about competitor’s getting ‘unfair’ assistance from various state or federal governments, the airline and aircraft making sectors would be a poor shadow of what they have become without them.

It could be some time before a CSeries jet flies for an Australian airline. The current need for regional jets in this country is depressed by falling resource industry activity, and large fleets of older F100 and Boeing 717 aircraft that are unlikely to need economically rational replacement until sometime in the 2020s.

But the raw nerves being inflamed by the current dispute could burn a lot of other orders for Boeing aircraft, all of them also subsidised, and often sold for way below cost of production in fierce contests.

This is an issue similar to other free trade or fair trade disputes in agriculture, textiles, automobiles and consumer white goods. If the barriers to trade go up, the common wealth that underpins societies like those of Australia and its Asia trading partners will go down.


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28 thoughts on “How a Canadian regional jet could spark a ruinous trade war

  1. [email protected]

    In view of the tax Boeing does not pay, perhaps we could buy Bombardiers. And if the Canadians do a really good job, then Qantas and Virgin could buy Bombardiers! And no one buy American. They seem to want their profits tax free, and to charge Australians more, for whatever they are flogging. Why put up with it?

    1. Dan Dair

      That’s one of my issues with Boeing,
      the other being the ‘inducements’ Boeing receive to locate new production facilities in other parts of the USA.!

      I know other manufacturers have had various levels of ‘state-help’ at various times in history (such as Bombardier last year).

      I makes me quite cross when Boeing’s PR churns-out the ‘state-help abroad’ bulls417, but manages to fail to mention what they’re able to wangle at home, because they’re such a big employer.?

  2. Jacob HSR

    The WTO is a disaster. 200 nations are not going to agree. Why even attempt a global agreement?

    Although I do wonder how all nations on the planet agree on traffic lights! Green means go, etc.

    Nations should be allowed to put import taxes on whatever they like. China and India put huge import taxes on Ferraris and good on them for doing that because people do not actually need to drive a Ferrari. If Bangladesh has big import taxes on fire extinguishers, that is a concern because it is a critical safety item unlike a Ferrari.

    As for civilian aircraft, well, if someone purchased a house for $400k and sold it for $300k, you should be grateful rather than taking them to court!

    1. Dan Dair

      The plane (deliberate spelling) facts are that protectionism stifles world trade.
      How many aircraft would Boeing sell if every nation put a 220% tariff on their products.?
      Sure, they produce good aircraft, but that’s because pretty-much everyone else gave up making aircraft due to world trade agreements.
      Most affluent ‘Western’ nations have had an aviation industry in the recent past, such as the Dutch-made Fokker F28’s & British RJ80’s, which remain so highly rated on the FIFO routes.
      Airbus effectively took over from all the European civil aircraft manufacturers
      & Boeing is all that’s left of a range of similar in the USA.
      There are no other options anymore for anything bigger than a feederliner.

      Protectionism would actually play into the hands of China & Russia.
      These vast nations have existing technological expertise, which could be developed to meet the requirements of ‘home-grown’ aircraft manufacturing, should the need arise.
      Every other nation outside of Europe or the USA will struggle to find the money to develop replacement products of their own.

      IMO the only other option would be to begin to raid the ‘boneyards’ to rebuild airframes into an airworthy condition.
      Of course, since most of the boneyards are in the USA, I’d then start to wonder if nations would impose tariffs on importing ‘used’ airframes & components from the USA.?

      Such a move would be a significant step-back from fuel-efficiency
      & the reduction in new sales would stifle the R&D budgets for future aircraft.?

  3. brian crooks

    anybody notice that Canada is not buying the crappy strike fighter that does`nt fly on wet days, or most days if it comes to that, should change its name to howards folly fighter, seems Australia is the only fools buying the heap of crap every other nation has cancelled them, even the U.S air force does`nt want them.

  4. Jacob HSR

    It seems like the Cseries can fly out of LCY airport! Neither A319 nor B737 can fly out of LCY airport due to the runway being “only” 1.5 km long.

    Bankstown Airport has a 1415 m long runway. Just need to find another 100 metres and it could fly out of BWU airport? They were talking about extending the runway to 1635 metres. Do it! Or is there some corrupt monopoly going on?

    1. Dan Dair

      I thought the A318 & 319 could use London City, but not the ‘320.?

      The C-series probably doesn’t even need the runway, just the ‘clear space’ beyond the tarmac.?
      Of course, Bankstown would need the appropriate airfield passenger license
      AND of course,
      an airline which actually wanted to fly in & out of it, making no easy connections to KSA.?

    2. Ben Sandilands

      Jacob HSR,
      Bankstown definitely had its chances for limited range commercial single aisle operations in the early 90s, but several things went wrong.
      In no particular order, neither Australian (former TAA) nor Ansett wanted to replicate their customer support at KSA. Connecting traffic between the airports was already impracticable in terms of road conditions.
      No alternative airlines with any hope of sending the necessary $$$$ have ever emerged, and that includes to date so called ride share small turboprop flying clubs.
      The climate is changing. Extremely heat affected conditions are increasing, affecting payload/range opportunities, which is likely to become true even at Sydney for ultra long range proposals.
      Bankstown Airport was also sold off to investors whose actions since suggest very strongly that the real estate value of the airport for big box retailing and similar is seen as far more valuable, and coincidentally or otherwise, the general aviation industry which is the aeronautical source of revenue for the airport is imploding. No ifs and buts. The ‘cranky old men’ who have a commitment to Bankstown are less in number every year. As far as Bankstown is concerned, it’s almost over red rover. Even for very small private aircraft. Buying back land lost to commercial real estate or other purposes would be both essential and formidably costly for it to be reopened for RJ sized jets and would involve compulsory acquisitions. It’s not on.

  5. Tango

    As an American I am appaled at the use of this mechanism. Sort of like when the politiaoc write a letter of spport for a sex offender.

    I do not endore nor in anyway support Boeing.

    But also keep in mind, Boeing is not the US though the Corproate Green and heavye tactics have become the norm.

    Do not mix Boeing up with America, any more than Trump is.

    Our dark side yes, but not all of us.

    We wobble and go down wrong paths but in the long term I hope we return to a paths of decency.

    So don’t condemn all for the actions of a few and powerful.

    Hopefully good minds are at work at beating Boeing on this, I have idea of a lease setup and the powers of BBD and Canadian government should be thinking along those same lines.

    There are many Boeing programs they can truncate and buy elsewhere and I encourage them to do so as well.

    One company that pays no taxes can ruing a very good relationship with a very good neighbor. That is corporate ugliness at its worst.

    1. Dan Dair

      It would be a real slap-in-the-face for Boeing if Delta were to take the C-series using leases, as you suggest.?
      I don’t imagine that tariffs would apply to leases because they’re not purchases, so Delta would never own the aircraft.!

      Also, with Airbus constantly knocking on Delta’s door for sales opportunities,
      there’s a good chance that Delta could leverage this faux-pas to persuade Boeing to part with a bunch of aircraft at well-below their actual cost.?
      (Perhaps the USA will put a 220% tariff on Boeing for such an ‘unfair & underhand’ bit of business.????)

      I am truly amazed by Mr & Mrs Boeing these days…..
      If they were real people, you’d be having them psycho-analysed to see if you could remove them from the board on the grounds of mental capacity (or lack of it.???).?

  6. Giant Bird

    What lunatics are running Boeing? Where is the short or medium term gain in making an enemy of the worlds biggest airline. How can they expect to get any future orders from Delta after this? Canada should make it as difficult as possible for Canadian airlines to buy Boeing aircraft in the future, even find a way to levy extra landing charges on Boeing jets operating into Canada airspace to try and recoup what Canada is loosing on this.

    1. Dan Dair

      Giant Bird,
      “find a way to levy extra landing charges on Boeing jets operating into Canada”
      That’s really funny. I’d have never have thought of that one.?

      I think it might even work in practice if Canada chose to impose it upon aircraft purchased after the US DoT made that announcement.?

      TBH, I think Boeing is slowly going down the pan, mostly due to mismanagement & I think this is yet another example of muddled-thinking in that management.?
      Instead of championing America & the virtues of free trade, they’re whining about unfair competition, when they’re as bad (in their own way) as anyone else
      & effectively telling the world (& the financial markets) that they really just can’t compete with Airbus or Bombardier anymore.?

    2. Ben Sandilands

      While I have a great deal of respect for the illustrious and long history of Boeing, this risks being seen an unfortunate exercise in spite that will further draw attention to the general uselessness or lack of attractiveness in the Boeing 737 MAX 7 offering, which like the apparently more advanced equivalent, the A319 NEO, is also too small in capacity for most mainline use, and thus at a cost per seat per unit of distance disadvantage. Virgin Australia has expressed an interest in the MAX 7 as part of a fleet standardisation exercise. That might be fine in theory, but I’m hearing more than a little blow back about lack of connection with the reality of Australian domestic and regional international services in the coming decade.

      1. Dan Dair

        In Europe, Easyjet operate a biggish bunch of A319’s, but presumably this means that any of the existing A320 pilots can get in & fly them with no or minimal conversion
        & engineering-wise they’re pretty-much identical to their big brothers.?

        So it’d make good sense for Easyjet to operate a ‘one-make’ inventory, even if the A319 isn’t actually the most efficient aircraft in it’s class.?

  7. Deano DD

    All international trade must be stopped
    Remember in the “good old days”
    We made stuff here cars, planes, boats and trains
    Everyone had a job and you only needed one average income to buy your house

    Then came the WTO and the tariffs started to come down
    Our manufacturing went off shore to countries that paid 1/5 of the wages we were earning
    The top end employees prospered while bottom end jobs disappeared and unemployment numbers grew and taxes went up to pay for the unemployed including company tax which further pushed more companies off shore
    What was brought in to be a safety net (the dole) has now become a multi-generational way of life for hundreds of thousands of Australians

    Then we started a policy of mass immigration
    The government now tells us that our economy is in good shape as our growth is 2-3%
    Our economy is only growing because we are adding population through immigration at roughly this rate and immigrants spend money and that factors into the GDP and gives us the growth, so take out immigration and GDP growth would disappear or go negative

    Our country is heading for financial disaster due to the edict of the WTO
    Governments should be charged with treason for allowing this to continue

    The airline manufacturers squabbling over subsidies is merely a small result of a much larger pictute

    1. Ben Sandilands

      Deano DD,

      I remember the protectionist world, and in Australia, very well. Some kids walked to school barefoot. At night queues formed in struggling working class suburbs like Clovelly and Manly to use coin telephones, car ownership was rare, and Australian white goods like washing machines and’fridges not only cost massive sums, but constantly broke down. We lived off wool and wheat exports.
      What Australia needs today is higher technology jobs, mittlestand type German enterprises, and continued if not enhanced access to all of our high quality lean agricultural products, as well as our engineering expertise, which is highly valued as an exported service in many countries.

      We do not get any of that access without being open to world trade, where, if you have been paying attention, the Australian cost base is now often competitive with that of Singapore, and South Korea, and the US, and in some cases in the EU. Even Qantas is more profitable in its own right per comparative unit of activity with much larger airlines like Emirates.
      If we run away and hide under rocks, or palm trees, our skills and our harvests will largely atrophy or rot in the fields.
      We do need far more effective corporate taxation, an issue which Australia shares with other free or freer trade partners like Japan and Germany. And probably less taxation at a consumer level. Running away from trade reforms that have created much more wealth in this country than was ever available in the good old days would be a disaster of enormous proportions, and, unable to defend ourselves, the likely annexation of large parts of the continent, and a total loss not only of our dignities but our sovereignty. There is no going back. But there does need to be a huge improvement in how we go forward.

      1. Deano DD

        Ben perhaps I am looking through rosy coloured glasses but:
        I’m 49
        When I was 18
        My parents had 2 Holdens 1 premier and 1 Special for mum to drive
        Lived in a 4 bedroom house on a 1/4 acre in the shire (Sydney)
        My dad worked and mum stayed home
        The house was paid off already
        I bought a 3 year old Kingswood ute for $2,500.00 from a part time job at the age of 17
        We hollidayed twice a year
        We had a Hoover washing machine, a Krysler colour tv and air conditioning
        We even had a dishwasher (not mum)
        Things were good and relatively easy back then

        Ben I am certain that if you pulled the dole away tomorrow, the lines that you saw for jobs back then would be dwarfed by those that would be seeking jobs tomorrow

        The number one issue we have in todays global economy is that a huge number of bottom of the ladder jobs have been lost overseas
        From production line workers to call center jobs
        Not everyone will go to UNI and be on $200k + per year
        Most long term unemployed tend to now be multi-generational or unqualified

        Yes Australian made card and fridges were more expensive back then, but you could afford to buy them because relative wages for bottom end workers were better because of protectionism
        We taxed goods coming in and other countries taxed our wheat and sheep

        Ben I do have one simple solution though
        As tariffs are a big no no these days
        But drug traffickers are getting through our boarder protection as they are only checking a small percentage of containers coming into Australia

        Check every car, container and parcel or letter that comes into Australia for drugs
        And charge importers to do so
        Higher cost to import goods (perhaps more will then be made in Australia)
        More jobs in customs
        More government revenue
        This is not a tariff


        1. Ben Sandilands

          Deano DD,
          That means you grew up in an Australia that was already well advanced down the trade reforms you want to end by immediately ending all international trade, and I might add, totally destroying farming in this country. I lived in the sort of Australia you seem to think can be reinvented by slamming the doors, being born in 1943. Your wish would have catastrophic effects on this country, and render it prone to civil disorder on a massive scale. We need to do trade reform a lot better, and clearly not replicate the disastrous mistakes Trump appears hell bent on making either. His seems to be a policy of shooting the patient, rather than trying to revive it.

          1. Dan Dair

            “We lived off wool and wheat exports”
            I think you’re wrong……..
            Australia sold a phenomenal amount of canned fruit too.!!!

            I side with you on this.
            There’s a lot of reactionary people out there who really believe that we can ‘close the lid’ of Pandora’s box & go back to some wondrous time in the past when everything was just right.????
            Of course maybe there was such a time,
            but there’s a really good chance that when things were ‘just right’ for you & your’s, they were really sh177y times for someone else & their’s.?

            Global markets HAVE taken some of the lowest paid (menial) jobs out of Western economies & transferred them to low-cost & often Asian bases.
            it’s important to remember that this was a decision of businesses all over the nation, (on-topic alert) not the least of which was Qantas deliberately closing the Avalon heavy maintenance depot, to save money by moving the work abroad.?

            Sure, you can pay your staff a ‘living wage’, but that’s no damned good to anyone, if your company actually can’t stay in business because their costs are too high.?

            Germany is a prime example of a nation which can build products at a profit.
            They do this by cutting edge design, cost-effective production & strong brand-values, which help to justify a high product price.
            They are also not afraid to manufacture components or products overseas, where the quality is not an issue or the price is the determining factor.?

            GM & Toyota pulled out of Australia because they couldn’t make their numbers work.
            This is a function of global businesses & is a real-world problem for a nation such as Australia, because of the relatively tiny population.

            If Australia was to go it alone & have huge import tariffs which mirrored those from other trading ‘partners’, where would it buy it’s replacement aircraft from.?
            Where would it buy it’s oil from.? etc, etc, etc.?

            Australia is doing very nicely at the moment from the export of produce, into China & Asia.
            The Australian government should be facilitating manufacturers & producers to find where their expansion markets might be & to help them get new contracts & generate exports under the current ‘free-trade’ situation.?

            Australia is under-populated for its size. It has to generate greater productivity, to be able to pay its workers better wages. This comes from exporting more or higher-added-value goods & services.
            If Australia can manage that, the good times will come back,
            if not (& if protectionism should return)
            Australia might start to see the mothballed (& 20+ yo B747’s brought out of retirement & pressed back into service, because Qantas (& any other Australian airline) can no-longer afford to buy new aircraft from overseas.?

    2. Dan Dair

      Deano DD,
      “We made stuff here cars, planes, boats and trains”
      Did Australia really make all those things.?

  8. StickShaker

    The entire Boeing/US DOC case against Bombardier is predicated upon them offering the C series aircraft to Delta at a price far below the cost of production.
    Any manufacturer producing a new aircraft will be selling them at a loss until the program reaches break-even point – this is basic economics that the US DOC chooses to ignore. It doesn’t matter what sort of widget you are producing, you are not going to make money until your program passes the break even point which can be several years in for something as complex as a modern civil aircraft program.
    The first 50 or so 787’s off the line cost Boeing a fortune to produce – far more than the heavily discounted prices they were sold for. The US DOC didn’t have a problem with that one.

    1. Dan Dair

      The first 50……..
      & at what production numbers did Qantas’s aircraft come off the production line.?
      Heaven knows, they were purchased at well-below Boeing’s ‘break-even’ figure, because Boeing offered them at a massive discount, paid QF for the delays & then allowed them to defer the option a couple of years down the line, without losing the fabulous ‘opening-offer’ discounts Boeing gave.!

      I said before that Boeing are as bad as everyone else. I don’t believe they’re particularly worse than anyone else, though.?
      That said,
      they’re barking up the wrong tree if they think protectionism will help them, because it won’t.
      It will force other nations to react the same way Canada has & place reciprocal tariffs on US & particularly Boeing products.
      Once this starts, it’s an simple step to find that you’re on a greasy slope which you can’t get off.

      The USA doesn’t really need too much in the way of exports to remain a vibrant economy (financial scandals & world economic recession apart).?
      The same can’t be said of Australia, which is a relatively empty place & will be much less well-served by industry (including agriculture) which is focused primarily upon the domestic market or which is focused primarily on the export market.?

      Either way, Australia HAS to produce quality goods or services which foreign nations wish to buy, in order to validate wage rises.
      Unless we want to return to a 1950’s style of economy, where anything above the ‘bare necessities’ was almost considered as ‘frivolous’ by the state & taxed accordingly.?

      1. Deano DD

        Dan you said that Germany is going gangbusters
        Perhaps you need to understand the benefit the EU is for Germany
        As Germany is in the EU and trades in Euros it effectively has an artificially low currency than if it was a stand alone nation
        One Aussie dollar currently buys 1.51 Euro
        That is the absolute main reason Germany is where it is today, and as it happens, why Greece has imploded as it had a low value currency prior to the Euro

        By the way you are delusional if you believe that our exports are being tariffed by hidden taxes and charges
        Australia by the by plays by the rules
        Pity the same can’t be said for our trading partners

        1. Dan Dair

          Let’s ignore Greece on this one as it would appear as if they faked the evidence on their EU application form.?
          Meanwhile, Germany appears to be the driving-force which, if anything supports the exchange rate of the Euro, rather than benefiting from the higher value of the currency.?

          Re. “our exports are being tariffed by hidden taxes and charges”
          I don’t understand what I said which would make you believe that I meant to say what you said.

          I was trying to get at the issue of scale,
          which means that a company in the USA, which is set-up to service the whole of the USA, would have little trouble scaling-up its production to include the whole of Australia.
          A business in Australia, servicing the whole of Australia, will struggle to scale-up to service the whole of the USA as well.?

          That’s not a dig at Australian innovation or business acumen,
          but a reflection upon the size & scale of Australian businesses in the world markets.?

        2. Jacob HSR

          Deano, thanks for your historical insight! I do love to know what life was like in the past.

          It is a myth that AUS has to have low tariffs. India puts a 20% import tax on buses and 60% on cars! AUS has gone out on limb by cutting the import tax on cars to 5%. Even EU charges more (10%)!

          China puts a 25% import tax on cars.

          AUS should put a 30% import tax on non-electric cars and you will see cars being assembled in AUS once again.

          1. Ben Sandilands

            One thing I would keep in mind in this very interesting discussion is that without trade and the capture (by tax or other mechanisms) of a return from the economic activities generated Australia would be ‘finished’. Another thing is that if ‘we’ don’t use our resources shrewdly others will do it for us. And to us. None of us can stop the world, but we can influence it. And I don’t think the self obsessed society in which we live is really up to scratch on such things at the moment.

          2. Dan Dair

            When India puts a tariff on buses & cars, it’s not just about protecting home-based businesses,
            it’s also (possibly mainly) about currency not going offshore.?

            Maybe, if Australia still had any mass-manufacturing of cars, there might be a case for tariffs. Since there isn’t, tariffs of any level will restrict the ability of Australians to buy a new car, to no benefit other than increasing the tax-take.?

            I do though, completely agree with the value of directing the uptake of electric, or at least substantially more eco-friendly vehicles, by the use of taxation or tax-breaks.?

  9. Dan Dair

    The US DoT has just announced an additional 80% tariff on the C-series, taking the total tariff up to 300%.!!!

    Do the DoT actually think that Bombardier are selling the aircraft for a quarter of its production costs.?

    Did they not consider the amazing price which Qantas has & is still paying for the B787’s ordered from Boeing, which clearly were absolutely nothing-like the full production & development costs per unit,
    or the amazing tax-breaks which Boeing are able to glean from both the nation & the individual states they operate in.?
    ……………. One would imagine they did not.?

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